I hope you enjoy the following guest post by Lisa Cintron on behalf of OnlineAnnuityRates.com.
It is becoming more and more common for people to decide to open up an annuity savings account in order to prepare themselves for the future. There are good reasons for this. Saving for the future is important, especially since Social Security is unlikely to pay for all of the costs associated with retirement. Here are five reasons that it is a good idea to open an annuity savings account.
1. Guaranteed Income
This is perhaps the number one reason that people invest in an annuity savings account in the first place. There are several ways in which your funds can be annuitized so that you are guaranteed never to outlive your money. It is surprising how many people end up outliving their retirement funds, especially as life expectancy is on the rise. Many annuities allow you to avoid this from every occurring. It is also possible to set up joint-life plans, or plans that will continue to pay out for a certain number of years regardless of whether or not you pass away in the meantime.
2. Tax Benefits
An annuity savings account earns interest without being taxed. This means that you not only earn interest, and interest on interest, but you earn interest on funds that would otherwise have been taxed. This means that your funds will grow at a much faster rate. You do not have to pay any taxes on the growth of the annuity until you start receiving payments.
3. No Annual Fees For Fixed Annuities
Unlike mutual funds and some other types of investments, there are no annual fees that you have to pay in order to maintain your investment. Avoiding paying fees on something that is supposed to be earning you money is obviously a good thing. The majority of fixed (which includes equity indexed annuities) have no up front charges that you are required to pay in order to set up the annuity savings account. This is why fixed annuities are a great deal, all of the money starts working for your right away. On the other hand, variable annuities often do charge upfront fees, and may charge annual fees as well since they are investing your money (often in a mutual fund).
4. Medicaid Benefits
When annuities are turned into income, they are no longer considered an asset. You can not receive medicaid unless you have spent down all of your available assets. Since an annuity is not included in these assets, you can receive medicaid assistance.
5. Not Public
When you open up an annuity, you are setting up a contract between you and the insurance company. You pay them a premium, which could be a lump sum, or could be a series of payments. In exchange, the insurance company agrees that it will pay a specific amount to you in the future. When it comes to funds that you want to invest but don’t need to be able to withdraw from until the future, this is one of the best places to put your money. Much like a life insurance policy, you can also name your beneficiaries. When you die, the funds are transferred to your beneficiaries without probate. This is a good way to transfer funds privately.
From Kris: Are annuities a part of your retirement portfolio? I currently do not invest in an annuity, but it is something I may consider as I get older.