4 Benefits When You Buy An Annuity


When choosing how you want to invest and save money for your future, there are many different types of investments and insurance you can choose from. Here are four benefits you will get from buying an annuity.

Choose From Several Types of Annuity Options

As you look into the option of an annuity for your retirement investment, you can select from several different types of annuities. An immediate annuity is a type of annuity that you would purchase if you want to immediately begin receiving payments from it. This can be beneficial if you are going to retire soon and will need to supplement your loss of employment income. 

A second type of annuity is a deferred annuity, which begins to accumulate money through its investments. This type of annuity is best if you won't be needing to receive payments from your annuity for some time. You also get to choose from a fixed or variable deferred annuity. The fixed annuity pays you at the same rate each month, which is set up with the annuity's insurance company. A variable annuity's value is tied to the investment performance of the funds your money is invested in. You can choose the type of annuity that works best for you and your own financial needs.

Take Control of Fund-Based Investment Gains 

When you are investing your money into a fixed-rate annuity, your annuity grows according to the rate the insurance company quoted you when you invested. But if you have select a variable annuity, you can choose the mutual funds your money is invested with.

This part of the investment gives you some control of the growth of your annuity's funds based on their performance and growth. You will likely have the option of choosing from various mutual funds the insurance company has established for your annuity. For example, if you feel a mutual fund you are invested with is not performing as aggressively as you would like, you can manage the annuity funds to change your investment to a different and more aggressive mutual fund.

Take Advantage of Unlimited Annual Contribution 

One of the biggest advantages to investing money with an annuity is that there is no limit to the amount of money you can contribute to it every year. Many other types of investment and savings tools have a limit on how much money you can place into them each year. For example, the amount of money you can put into a traditional or Roth IRA is limited to $5,500 per year or $6,500 per year if you are age 50 or older. Then, the amount of money you can put into an employee 401(k) each year is limited to only $18,000, although this amount does not include your employer's contributions.

With an annuity having no limit on how much you can add into it, it is a beneficial investment tool to contribute to if you are nearing retirement age and don't have a lot of time to add to your retirement savings. And at the end of your career, as you are potentially making the highest annual income over your entire lifetime, you can contribute as much money as possible to save for your retirement.

Benefit From Tax-Free Savings

Along with no limit on your annual contributions, the money you invest into your annuity goes into it tax-free. Then, you don't have to pay any taxes on your money until you collect it at retirement in either payments or a lump sum payout.

During the time your money grows and makes gains, you are using pre-tax money to grow your investment, giving you potentially more money to work with. Inversely, using taxed money is investing money from your paycheck that has already been taxed. For example, if your tax rate is 25% and you have $1,000 to invest, you can invest all $1,000 pre-tax into your annuity. If you invest that same $1,000 from your paycheck after it has been taxed, you would only be able to invest $750. 

Reap these four benefits when you buy an annuity for your retirement investment.


31 August 2016

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