Intro

• An annuity is an insurance product designed to provide consumers with guaranteed income for life.
• Annuities can be optimized for income or long-term growth, but they are not short-term investment strategies.
• The type of annuity you purchase determines your future annuity payments.
• Some annuities may also be optimized to help pay for long-term care.
• The primary benefits of buying an annuity include principal protection, the potential for guaranteed lifetime income and the option to leave money to your beneficiaries.

Annuities work by converting a lump-sum premium into a stream of income that a person can’t outlive. Many retirees need more than Social Security and investment savings to provide for their daily needs.

Annuity contracts transfer all the risk of a down market to the insurance company. This means you, the annuity owner, are protected from market risk and longevity risk, that is, the risk of outliving your money.

One of the most attractive features of annuities is their favorable tax treatment from the IRS. If your annuity was purchased with money that you’ve already paid taxes on, then only your earnings will be taxed when the money is withdrawn.

Annuity Benefits

One of the key benefits of an annuity is that it allows the investor to save money without paying taxes on the interest until a later date. Annuities have no contribution limits, unlike 401(k)s and IRAs.

Another significant benefit of annuities is the creation of a predictable income stream to fund retirement. 

Reasons To Buy an Annuity

• Long-term security
• Tax-deferred growth
• Principal protection
• Inflation adjustments
• Death benefits for heirs
• Probate-free estate distribution

People buy annuities to create long-term income. While most often considered financial solutions for older people who are close to retirement, annuities can benefit investors of any age with a variety of financial goals.