Retirement annuities seem to have a bad reputation. However, when you've subscribed to all possible tax advantaged contribution plans and you still need to save towards a retirement account, a retirement annuity can be a serious option.
This type of investment allows your money to grow in a tax-deferred way. That growth is taxed at ordinary income tax rates on withdrawal. You can 'buy' the annuity with a lump sum or you can invest an amount on a regular basis.
If you chose a fixed-rate annuity the insurance company handles the investment of the money and pays you a pre-determined fixed return.
The other option is a variable annuity and you decide on the investment spread – from conservative to risky – of your funds. A variable annuity is therefore actively managed on your behalf and its annual expenses could be higher.
At retirement you have some options:
You can withdraw the entire amount. This seems to be a very popular option. I have done so myself. I thought I could invest it better that the insurance company! In retrospect I'm not sure that I did better.
You can opt for regular and guaranteed payments for a fixed period of time or until your death. This provides you with a steady source of income. At death the balance goes to your beneficiaries.
Commission and Fees
Retirement annuities seem to have a bad reputation because it is sold to you by an insurance broker who gets a commission on the sale. Well, when you buy life insurance the insurance broker also gets a commission. I fail to see why the commission is acceptable for life insurance but not when buying annuities.
There's also the argument that management fees on retirement annuities are expensive and that the growth is mediocre.
Years ago the company that I worked for was taken over by a larger group of companies. During the roll over of the old pension plan into the new group's plan a portion of the accrued pension of the old plan - by law – had to be put into a retirement annuity. The amount was trivial and I totally forgot about it.
At age 65 the insurance company contacted me to start drawing against this annuity. I was astounded at the capital that trivial amount grew into. And watching the growth on a balanced investment spread I don't think a professional portfolio manager could do better on such a relatively small amount.
On this Web site we recommend that you appoint a qualified and experienced advisor to assist you with your retirement plan. Your advisor would be able to propose the best annuity for you and your circumstances.
More on Annuities
The annuitization of your retirement savings should be a simple matter! In practice, however, very few people buy annuities at retirement.
Several options exist when you are looking for this type of calculator. I review a couple on this page.
Index annuities are extremely popular. Millions of people have invested in these annuities. That tells me that index annuities are popular because it fills a gap. It offers what people want.
For your retirement planning, annuities should not be ignored. However, it should not be your first choice either. Let's try to put that statement into perspective.
The tax deferred annuity offers a glimmer of hope to many who neglected their retirement provision. The different annuity products offered by insurance companies are rather complex, but they have in common the benefit of tax deferral.
An equity-indexed annuity sounds like the perfect retirement planning product in our unsure financial climate. It is also called a fixed index annuity and in short EIAs.
A Flexible Premium Annuity Is Perfect When Your Income Is Unpredictable A flexible premium annuity gives you much freedom in your retirement provision effort. However, it demands self discipline of steel. It is perfect when your sources of income are unpredictable.
Immediate annuities do not qualify as a pre-retirement provision plan. It is rather for people facing the reality of retirement. An attempt to make your available funds last a lifetime.
A Market Value
Adjustment Feature Shares Some Annuity Contract Risk
A Market Value
Adjustment, or MVA, feature in your annuity contract enables your
annuity company to pay you a better rate because you share some risk.
Retirement planning the offshore way is not for everyone. The fact that you read this means that the offshore route appeals to you.
Using Swiss banks evoke a wink-wink, nudge-nudge, reaction from many people. When they hear that I use a Swiss bank they seem to assume, for some reason or another, that I must be some black hat artist!
Before you make a decision, do investigate a Swiss annuity. We dedicate a special page to Swiss annuities. For residents of the United States of America it is possibly the only legal way to invest in the ever popular Swiss Franc.
Swiss bank accounts is an alternative that you can consider when you investigate Swiss annuities.
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