Basically, annuities have two phases everyone needs to be aware namely the accumulation phase and payout phase. When you are still at the accumulation stage, you need to make payments for the annuity either through lump sum payments or through an on-going basis. And depending on the type of annuity you decide to take advantage of, your annuity will grow in value based upon the rates that was set by the insurance company (known as the fixed annuity) or the rates can also be dependent upon the sub accounts (known as variable annuity).
If you need to sell tax deferred annuity, try to compute the amount of money you can potentially have before you decide. It would be difficult to have regrets later on. In both the fixed and variable case, your annuity will grow during the accumulation stage and its taxes are deferred. But you should realize that “tax-deferred” does not translate to tax-free because you do need to pay taxes later on.
There are tax free investments available on the market such as municipal bonds but annuities are different because any gain you derive from this will be taxed. However, take note that you will only need to pay these taxes after you decide to withdraw your gains in your annuity.
But tax-deferred can actually be used as an incredibly powerful tool especially if you are thinking for the long term. Consider a person who is currently at 28% tax bracket; if he inherits $10,000 and then he places this amount in savings account, he will be taxed at the end of each year on the gains he derives. On the other hand, if he puts this same amount of money into annuity, he will be taxed only after he withdraws his annuity.
As you can observe from the example, tax deferred can provide an added value by utilizing the time value of money. The annuity had earned interest using the money that could have been paid every year on taxes in the saving account.
However, tax-deferral is not the single reason why annuities have become such a popular investment option these days. Typically, even though they have five to seven years maturity dates, annuities do not require you to undergo medical exams and other extensive requirements. Plus, it can be opened by simply filling out the basic annuity payment contract.
These days, there are many different kinds of annuities that an investor can choose from; he needs to choose a plan that can meet his specific retirement goals. For example, if you are considering fixed annuities, you need to take note that insurance companies will typically offer higher rates at the start although this will be lowered later on. There are also some insurance companies that provide consistent rates throughout your lifetime so you need to determine which kind of fixed annuity is perfect for you.
On the other hand, there are also the variable annuities which give you the alternative on deciding how the money can be invested into separate accounts. Typically, these accounts are available from money managers; for example, a lot of mutual fund companies provide clients the option of investing in variable accounts.
Annuities are definitely a good investment option for you when you are preparing for retirement and you can also sell tax deferred annuity to various annuity buyers easily if ever the need for immediate cash arises.
