Choosing the Right Annuity For Your Retirement Fund

In these days of economic stress, tumbling financial markets and colossal losses to various retirement and pension funds, annuities have caught the attention of many concerned investors. Annuity sales were originally expected to top $200 billion in 2009 but first quarter activity indicates that figure could be conservative as investors seek to supplement their retirement funds and acquire guaranteed payouts.

An annuity has distinct characteristics. There are no other investments that can provide the owner such substantial deferred tax advantages along with guaranteed payments, regardless of market activity. Annuities have flexibility and can be tailored to meet the investor's needs. While early withdrawal penalties from annuities can be punitive, the typical annuity investor selects an option that achieves the desired goal and holds other funds in reserve.

Annuities have been around for a long time. There is a belief that a form of annuity was originally created during the Roman Empire and later emerged in Europe around the 17th Century. The Pennsylvania Company for Insurance on Lives and Granting Annuities was the first American company to market annuities. During the Great Depression, many investors viewed insurance and insurance products with great favor. Annuities blossomed in the 1930's. Those early 20th century annuities had many similarities to some of today's products, which have expanded in scope to meet new investment strategies and opportunities.
Today, there are four basic types of annuities; Fixed Annuities, Immediate Annuities, Equity-Indexed Annuities and Variable Annuities. As with any investment, the client must define their investment goals, assess their risk comfort level and then choose the annuity that best fulfills these criteria. Generally, Immediate and Fixed Annuities are the most conservative while Equity-Indexed and Variable Annuities are more aggressive.

The Immediate Annuity is safe, can yield a lifetime payout and is very popular as a vehicle to supplement other retirement income. With an Immediate Annuity, the insurance company guarantees the investor a fixed rate of interest from a certain period of time or until the investor dies, whichever time frame is longer. A typical Immediate Annuity could be described as Life with a 10-year period. As soon as the lump sum payment is received, the monthly payments from the insurer begin. These payments continue for 10 years or for the remainder of the investor's life, whichever is longer. If the investor dies before 10 years, a beneficiary receives the payments for the balance of the 10-year period. This investment is not affected by market conditions and is popular because of the stable monthly payment.

With a Fixed Annuity, the investor makes a lump sum investment with an insurance company and determines the amount of time of the investment. The insurance company guarantees a fixed rate of return for the life of the investment. When the time expires, the investor can withdraw the principal. Most Fixed Annuities permit the investor to withdraw between 10 and 20% annually.

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