Diversifying Your Retirement Portfolio? Buy Annuities
If you're about to retire and want an income you can't outlive then you'd be wise to buy annuities to supply a lifetime of income
. Annuities offer a great deal of diversification in your portfolio if you select variable annuities. If you fret too much about market conditions, these products also have guarantees.
For those that simply want an interest bearing product then a fixed annuity might be just to their liking. Fixed annuities work very much like bank CDs. The difference between the two is simple, tax deferral of the growth. Retirees and those about to retire in a higher income bracket benefit from sheltering their interest growth from taxation.
If you're a retired senior on social security, you know there comes a point when your income exceeds the limit and you have to pay taxes on the second half of your social security. Buy keeping the growth of your dollars in a tax-sheltered product; you could save hundreds of dollars each year by not only sheltering that growth but also keeping your income under that fine line that triggers even more taxation.
People often buy annuities for more than just the tax break they receive. The products are also good investments. People often prefer variable annuities to mutual funds because of the vast number of fund families included in the annuity. If the purchaser changed fund families outside the annuity, he would have to pay a new load each time he made the change.
Of course, each change would trigger a taxable incident. While the variable annuity owner eventually has to pay taxes on the growth of the annuity, the taxation process is a lot simpler. The mutual fund owner has to fill out the laborious capital gains form. This means that he must track every transfer he makes, including date, purchase and sale price.
At tax time, he must fill in the ominous form that brings grown men to their knees and makes women weep. Even accountants aren't impervious to an occasional swear word when it comes to capital gains on mutual funds. The annuity owner, however, simply reports the gain shown on the 1099.
When you buy annuities for an immediate income, you have a lifetime of income no matter how long you live. While it is a comfort to know that each month you'll receive another check, it also is a benefit to getting older. The longer you live, the more you make on your investment in the annuity.
If you buy annuities to pass money on to heirs, you have a choice on who receives the funds. Unlike wills, heirs or want-to-be heirs can't contest beneficiary designations as they can wills. This means a disgruntled family member won't be able to tie up the assets and keep them from the rightful owner.
No matter what your reason, when you buy annuities, make certain that you purchase the best product for your needs. Always do your research and understand how you want to use the product. A financial advisor can help you find one that fits into your future plans.
by: Jonathans Tyler
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