People buy annuities to create long-term income. While most often considered financial solutions for older people who are close to retirement, annuities can benefit investors of any age with a variety of financial goals.
Reasons to buy an annuity include:
- Long-term security
- Tax-deferred growth
- Principal protection
- Probate-free estate distribution
- Inflation adjustments
- Death benefits for heirs
Income annuities are generally suitable for people who are within a year of retirement and want the security of guaranteed income, or for younger people who have inherited a large sum of money and wish to protect the windfall from poor financial management.
In contrast, deferred annuities are generally not recommended for people who have short-term financial needs or younger people with more aggressive investment strategies.
Annuity Benefits
One of the key benefits of an annuity is that it allows the investor to save money without paying taxes on the interest until a later date. Annuities have no contribution limits, unlike 401(k)s and IRAs.
Another significant benefit of annuities is the creation of a predictable income stream to fund retirement. With an annuity, you don’t have to worry about outliving your savings. This is a major advantage in the post-pension age.
Your reasons for investing in an annuity should align with your unique lifestyle and financial situation.
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