Annuities can be a very stable investment vehicle that provides an immediate income stream or deferred tax benefit that wise investors crave. In fact, annuities deliver an easy way to develop retirement accounts that are able to grow tax-free until a withdrawal is made, providing predictable income in the future. Therefore, any investor who is seeking to create a diverse portfolio that accumulates funds and tax-free for future income streams should consider purchasing any number or varieties of annuities.
A prudent among for those planning on retiring or those already in their retirement years, annuities are popular contracts that promise to make periodic payments to the investor for a specific period of time and for a specific level of interest. This level of predictability helps calm fears of market swings. Of course, the amount of those return payments ultimately depend on the amount of money initially invested, the type of annuity chosen, the length of time that has passed, and the performance of the market.
Sold or backed by an insurance company, there are various types of annuities that exist and all with slight variations that may appeal to each investor, depending on his aversion to risk and financial goals. For example, variable annuities allow the investor a little bit of control at where to place his or her money. The investor may elect to place a percentage of that money in a higher risk fund as well as an index or bond fun. Similarly, an investor may elect to place funds in an indexed account of which the performance is tied to the investor.
On the other hand, fixed annuities for example, offer a predetermined rate of return of say 4%. This may be lower than the market growth over several years, but it is enough to keep pace with inflation, and it provides the average investor an opportunity for moderate income growth that is tax free. During the ebb and flow of the market is bound to occur from time to time, those investors who have place some of their earnings in fixed annuities will maintain a steady stream of income and negate much of the financial losses that traditional stocks may experience.
With annuities, the investor can get his funds back when he retires in a percentage that is entirely based on his discretion and on his fluctuating needs from year to year.
Further, he can either elect to be paid out all at once in one lump sum or in installments for period of time, say 10 to 30 years. For example, an investor can, at the age of 65, decided that he will withdrawal 7% a year for the next 25 years from his account. The longer the investor waits to make good on those withdraws, the more percentage or amount he would be able to take each month.
Building retirement income through various annuity accounts can create periodic paychecks that the investor knows will be there for a particular time period. A portfolio with several annuity accounts can all have various distribution or pay days that can supplement other investments the investor has made. With the predictable fluctuations in the market, fixed annuities generate the attention of conservative and frugal investors who would like to foresee a steady and dependable rate of return.