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Preventing Retirement Debt With Annuities

Remember the company pension? If you're part of a new generation of workers, you may know of this concept as an imaginary "benefit" once observed by people who worked at companies and jobs just like yours. In fact, they did once exist, and when teamed with social security, currently provide a superb income stream for thousands of retired people across the United States and Canada. But things have changed a lot over the past 15 years, and fewer and fewer companies are offering pensions at all, much less the rewarding pensions of yore. What's worse, the United States Government may not offer social security forever, so the payments you put in today may simply just be there to fund people currently retired, and those retiring within the next 20 years. So where does this put you, the young (of body, or at heart) worker who wants to retire, but without a massive debt load, and a comfort level you've grown accustomed to. Worry not, the odds are still in your favor in this game of cards. And for many people, the retirement ace of diamonds may be the annuity.


Annuities - Can They Work For You?

Annuities are investment vehicles that you pay into until retirement, with the promise that upon retirement, you will receive a steady income flow from them until you pass on. They are superb vehicles for a number of reasons, the major one being that earnings in annuities grow tax free until they are withdrawn. Also, there are typically no annual contribution limits on annuities, which means you can not only invest your maximums in both your 401K and IRA plans, but also add more money into your annuity. As well, your losses in an annuity are put in check mainly because unlike mutual funds, annuities offer beneficiaries a minimum of the amount that is paid into the annuity. On the other hand, mutual funds are subject to fluctuations of the markets, and have a beneficiary worth equivalent to their market value upon your death. Meaning it is possible to lose.

Different Flavors, Flexibility

Annuities are relatively flexible as well, in that they offer you the ability to pay into them as a lump sum, or with a fixed payment over a long period of time. As well, they come in variable and fixed rate versions. While with fixed rate annuities you get the comfort of a fixed rate of return, variable annuities allow you to place your cash investment in many different investment vehicles, thereby potentially increasing your returns (and your risk, as well.)


OK, So What's Wrong Here?

Are annuities the be all and end all of investment vehicles? No. In fact, the major problem with annuities is that they typically command extremely large fees. Although your tax deferred earnings savings typically balance out the costs of annuities, they are still quite expensive. Another important disadvantage is the fact that gains on annuities are taxed at significantly higher rates than most mutual funds.

Take The Good With The Bad

Ok, so annuities may not work for everyone. The high costs of this investment vehicle typically puts off a lot of interested investors. But, as a lower risk instrument, an annuity is a great idea, as it is structured to provide good income during your retirement years. Consider it as a superb defense against the possibility of retirement debt.


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