Annuities are types of insurance contracts sold to the holder of such policy by an insurance company. Payments are made to the holder of the policy at designated time periods. Generally annuities are paid after retirement; they have some tax benefits. There are many kinds of annuities that could be purchased with the aim of providing the holder with more piece of mind at retirement.This article discusses among others, the benefits of purchasing an annuity.
Although annuities are still important and popular today, its beginnings go back to the time of the Roman Empire. During the time emperors ruled in Rome, contracts were known as annua, which translates into English as Annual Stipends. Annuities are among some of the oldest known investment instruments in the world. Its origin dates back to 1634, when a man by named Lorenzo Tonti discovered annuity in its raw form. In the 17th century, annuities were used to finance wars in Europe. Today, annuities are possibly as popular as it was during the early times.
Types of Annuities
There are many kinds of annuities, such as Deferred, Equity Indexed, Variable Annuity, Roth IRA and (401K) Plans. Variable annuity contracts are often regarded as an investment, which pays periodic amounts to the holder of that policy. Often the amount of money to be disbursed is related to the investment performance of that particular portfolio. Variable annuity is also regarded as a diversification technique, through which assets are allocated to good and well-managed investment instruments.
Deferred annuities have become one of the more important investment retirement options in the market today. With the turbulent stock markets and the declines in stock market portfolios, Deferred annuities have attracted more attention of the retirement conscious baby-boomer generation. Part of the popularity is that regardless of the stock market direction, investments in Deferred annuities would continue to provide its safety net and affords its investors with guaranteed income, regardless of market direction. This advantage makes more sense to the potential retiree when they see what happened to their stock portfolios over the past two years.
What Are the Benefits of Purchasing an Annuity?
Annuities offer what has been referred to as STYLE, an acronym that stands for Safety, Tax Deferral, Yield, Liquidity and Estate Planning. In a nutshell, these five benefits are the kinds of advantages derived from annuity investments (see Resources). These advantages have important implication for retirement and, hence, the popularity of annuities today. Annuities provide tax advantages; this means taxes are deferred until such a time the holder of that annuity decides to withdraw money from the annuity account.
Retirement Planning Benefits
One of the annuity factors, which continue to appeal to the baby boomer generation, is its retirement planning benefits. As one nears retirement age annuity may become one of the more important options to consider as part of one’s retirement nest egg. Annuities can fit perfectly into your already existing savings plans such as 401(K) and Roth IRA.