Retirement annuities are designed to provide a long-term stream of income to individuals throughout their retirement years. They are a benefit that can be purchased from life insurance companies using a lump sum amount, and some companies also offer these as part of a benefits package, allowing the annuity amount to grow through contributions made while the individual is an employee. Retirement annuities have several benefits that can appeal to investors.
Guaranteed Fixed Income
Retirement annuities are structured so that the owner of the annuity does not outlive the life of the annuity in any scenario. This provides complete reassurance that as long as they live, the annuity will be active. Annuities are able to achieve this by only releasing a small portion of the total value of the annuity at any given time. The interest earned from the annuity's investments help to replace the lost funds paid out to you. Furthermore, the return rates offered on retirement annuities are guaranteed an unaffected by current economy or market conditions. Even if a depression hits, your funds will be safe.
Tax Breaks
If a newly-retired individual chooses to withdraw all their retirement benefits at once, the size of this amount can push that individual into a high tax bracket and result in large chunks of the retirement funds being lost to taxes. An annuity helps to disperse the payments out over many years, keeping you in a much lower tax bracket and saving you money. However, some investments made into annuities might be tax-free or already have been taxed and paid for on the front end of the investment. Check with your annuity account manager to determine what you specific tax situation is. Regardless, using an annuity is almost certain to save you money both in the short term and long term.
Beneficiary Benefits
Retirement annuities can be willed to your spouse as a beneficiary in the even of your death. This ensures your spouse will be taken care of regardless of what happens to you. You can decide how much of the annuity your spouse receives when you first set up the annuity--typically, investors choose a percentage between 50 and 100 percent of the annuity's value.
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