Retirement Planning

Retirement Planning - Annuities

For your retirement planning, annuities should not be ignored. However, it should not be your first choice either. Let's try to put that statement into perspective.

Early during your employment cycle, annuities would probably not even be offered to you as a choice for your retirement provision strategy. Much more efficient would be retirement provision plans like 401k because your contribution to the plan would not be taxed. Neither would your employer's matching contribution be taxed. That represents a gift – free money – untaxed!

The smart thing to do is to contribute to these types of retirement provision plans as much as you're allowed by the governing rules. The accumulated money in the fund earns interest and other investment income. The combined effect is that your plan grows exponentially. At retirement, when you start drawing benefits, you'll be taxed on the money you receive.

On the other hand, if you did not make retirement provision a priority early in your employment cycle you might wake up with a shock when you turn 50. That's what happened to me. My retirement provision was hopelessly inadequate and I had to employ some serious strategies to rectify that.

If you are in a similar situation, deferred annuities is one of the strategies that you should consider. It basically works like this: You contribute monthly as much as you can in the form of taxed money as a premium to an insurance company. The income on the accumulated balance of your annuity fund is tax-deferred. That's the accumulation phase.

When you retire and start to withdraw from your annuity fund you'll be taxed on the interest portion that's paid to you. That's the payout phase where your accumulated annuity fund is converted to a retirement income stream for your benefit.

If part of your retirement planning is to sell your business at the time you retire, you can buy an immediate annuity with the proceeds of the sale. The same applies for an inheritance. An immediate annuity provides you with a regular income as soon as you have paid the lump sum premium.

Annuities are rather complex and there are different types of annuities. On this Website we discuss several types and also the issues surrounding annuities. Do visit these pages and educate yourself to take control of your retirement planning annuities.

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