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If you are thinking about planning for retirement or earning a return on your investment, consider annuities. With annuities, you can receive regular income from your invested money. You can choose to start earning now, or after retirement and you can invest as much as you want, unlike IRAs (Individual Retirement Arrangements), which limit the amount that you can contribute annually. compare annuities Quotes & Find the Highest Income Annuity.

Is An Annuity Right For You

An annuity may be right for you if: You are planning for retirement? You are you paying too much in taxes? Start your free annuity quotes

In recent years, annuities have become increasingly popular. Annuity plans offer a wide range of initial contributions, ways of crediting your interest and payout options. Whether you are looking for long-term growth or for immediate income, you can probably find an annuity that will help fulfill your needs.

An annuity is a tax-deferred investment vehicle packaged as an insurance product. When you buy an annuity, its earnings are tax-deferred until you begin withdrawing the money. In other words, it works the same way as a nondeductible IRA. Because you're not paying taxes along the way, you have the chance to earn gains on untaxed money, and it grows much more quickly than a taxable account does (depending, of course, on the investments you've chosen). But the guaranteed payments promised in an annuity contract come at a price: providers charge a variety of fees for the management and insurance of the annuity.

An annuity has two phases: the accumulation phase and the distribution phase. During the accumulation phase, you can contribute as much as you want and the earnings in the annuity grow tax-deferred. During the distribution phase, you can elect to receive a lump sum or you can annuitize. Annuitizing means you turn your annuity into a stream of monthly checks for life or for a chosen certain period of time. The security of knowing you'll get income for a specified period, or for life, is one of the real advantages of annuitizing. Distributions and withdrawals are generally taxed as income.

There are two broad types of annuities: fixed and variable. A fixed annuity, the more conservative choice, provides a set return backed by an insurance company, much as a bank provides a stated rate of return on a certificate of deposit. Although the rate of return varies somewhat depending on prevailing interest rates, the return is still more stable than the variable annuity's.

A variable annuity invests in stocks, bonds, or money market funds, depending upon the type of subaccount you choose. Usually, you select the subaccount based on the level of risk and return you want in your annuity, just as you would when purchasing a mutual fund. For example, Lincoln Financial Direct's eAnnuity offers 14 subaccounts, ranging from its own conservative Money Market Fund to the Fidelity Investments' Equity-Income Fund to the riskier Lynch & Mayer's Aggressive Growth Fund. As you would expect, the more conservative subaccounts invest in money markets and bonds, and the more aggressive invest in stocks. The amount of return depends on the actual return of the subaccount investment.

What Is An Annuity

An annuity contract is a financial product, typically offered by a financial institution, that may accumulate value and take a current value and pay it out over a period of years. These contracts are regulated by various jurisdictions and this has led to the term being focused on different features in different parts of the world.

There are two possible phases for an annuity, one phase in which the customer deposits and accumulates money into an account (the deferral phase), and the annuity phase in which the insurance company makes income payments until the death of the customers (the "annuitants") named in the contract. It is possible to structure an annuity contract so that it has only the annuity phase; such a contract is called an immediate annuity. Annuity contracts with a deferral phase are similar to bank CDs and have a growth phase prior to distribution of income, and are called deferred annuities. The newest incarnation is the fixed, equity indexed product which can be either a fixed annuity or pure life insurance.

In the US, an "annuity" generally refers to a deferred investment contract that, upon "annuitization," will make regular payments (e.g., on a monthly or annual basis) to a person (called the "annuitant") for a period certain, over one or more specified individuals' lifetimes, or over a combination of life and a period certain. (See life annuity.)

Such contracts provide an income during retirement or a stream of payments as a settlement of a personal injury lawsuit (i.e., a structured settlement). Some annuities (called "joint life" or "joint and survivor" annuities) continue paying a second person (i.e., the "beneficiary") after the annuitant dies, until that person dies as well. (For example, an annuity may be structured to make payments to a married couple, such payments ceasing on the death of the second spouse.) Annuities that make payments in fixed amounts or in amounts that increase by a fixed percentage are called fixed annuities. Variable annuities, by contrast, pay amounts that vary according to the investment performance of a specified set of investments, typically bond and equity mutual funds.

Variable annuities are used for many different objectives. One common objective is deferral of the recognition of taxable gains. Money deposited in a variable annuity grows on a tax-deferred basis, so that taxes on investment gains are not due until a withdrawal is made. Variable annuities offer a variety of funds ("subaccounts" in the parlance of the industry) from various money managers. This gives investors the ability to move between subaccounts without incurring additional fees or sales charges. An annuity is an insurance product; annuities are typically issued by the same companies that issue life insurance policies, and the risks undertaken by the issuer are fundamentally the same for both products -- that is, the insurance company bets on the life expectancy of the customer. The result is to transfer the effects of the uncertainty of an individual's lifespan from the individual to the insurer, which reduces its own uncertainty by pooling many clients.

With a "single premium" or "immediate" annuity, the annuitant pays for the annuity with a single lump sum. The annuity starts making regular payments to the annuitant within a year. A common use of a single premium annuity is as a destination for roll-over retirement savings upon retirement. In such a case, a retiree withdraws all of the money the retiree has saved in, for example, a 401(k) (i.e., tax-advantaged) savings vehicle during the retiree's working life and uses the money to buy an annuity whose payments will replace the retiree's wage payments for the rest of the retiree's life. The advantage of such an annuity is that the annuitant has a guaranteed income for life, whereas if the retiree were instead to withdraw money regularly from the retirement account, the retiree might run out of money before the retiree dies or not have as much to spend while the retiree is alive.

Another kind of annuity is a combination of retirement savings and retirement payment plan: the annuitant makes regular contributions to the annuity until a certain date and then receives regular payments from the annuity until the annuitant dies. Sometimes there is a life insurance component added so that if the annuitant dies before annuity payments begin, a beneficiary gets either a lump sum or annuity payments. retirement annuities