The number one reason that people purchase an annuity in the first place is income protection, protection from living too long. Think of it as an insurance to protect you from outliving your assets. It is not uncommon, and it is becoming more common, for people to outlive their retirement funds, people are living longer. For many people, it just makes solid sense. With the purchase of an annuity come contractual benefits known as settlement options. These options all the annuitant numerous choices for income. Income for almost any time period can be selected. Also it is possible to provide the same income benefits with an included spouse. In the event of a premature death, any unused funds will be returned to your named beneficiary.
2. Safety and Stabilization
Annuities are safe, secure and stable. Annuities are not subject to the fluctuations of the economy and do not participate in stock market downside. Annuities are some of the most regulated financial vehicles on earth. Fixed annuities pay a set and known in advance interest rate for a contractually specified time period. An example could be 4% for 5 years, each and every year the interest rate is earned and known in advance. Annuities are guaranteed by the issuing insurance company, these companies are rated by a third party rating service who assigns a finical strength to each company. Never in the history of fixed annuities issued under this system has anyone lost a penny, even during the Great Depression. Annuities add stability to any retirement portfolio.
3. Tax Deferral
Along with yield is an annuity benefit that allows for control over tax liability. The interest (or yield) earned from an annuity is not taxed while the annuity until funds are touched. Tax deferral can go on until the funds are touched or inherited by a named beneficiary. The annuity earns interest on the deposit, interest on the previously earned interest and interest on what would have been paid in taxes from a different type of savings vehicle such as a bank CD. Comparing apples to apples, growth is much faster with an annuity.
4. Privacy: Never public and always confidential
As annuity is a contract, when purchased a named beneficiary is chosen. As being a contract, it is not subject to probate expenses. The funds transfer immediately to a named beneficiary. And such nothing ever needs to be disclosed in probate court (which is public knowledge). Annuities are private.
While an annuity might not be quite liquid some investments, they certainly are more liquid than assets in their category of safety and security. Compare an annuity to a bank CD, any access to the CD prior to maturity will result in a penalty. Annuities allow for access to some of the funds without penalty. Annuities allow for 10% of the account value to be removed annually, which isn’t available with CDs or US Treasury vehicles.