As baby boomers rocket towards, in large numbers I might add, retirement market volatility is becoming scarier and scarier. Everyday more boomers are looking for secure places to keep their money. As a licensed insurance agent I feel obligated to discuss how annuities work.
Like most things you’ll find in life, annuities have pros and cons. An annuity is a contract issued by an insurance company. The insurance company guarantees to pay the annuitant or beneficiary, who can also be the owner or purchaser, a set amount of time in the future spread over a stated period of time.
Everyday more and more people become receptive to annuities because of the substantial benefit they offer over other types of retirement vehicles. Annuities have been designed with one specific intention in mind, retirement planning or saving. That is how annuities are intended to be used.
In fact one feature of an annuity helps to ensure this happens. If in any given year of the contract you withdraw more than the “free-withdrawal-amount” prior to 59 ½ you could be subject to income taxes, penalty taxes and even surrender charges may apply.
Let’s say you start your annuitization after 59 ½. More than likely you are in a lower tax bracket and taxes won’t account for as much of it. Maybe you don’t need the money at this time. You always have the ability to **continue** the annuity growing in its tax deferred status. It can keep rolling over accruing interest tax free.
Long story short an annuity is a savings vehicle intended to help plan and then sponsor your retirement years. They provide tax benefits while allowing the money to grow at a guaranteed rate. When you start withdrawing the money, depending on your age, you’re in a lower tax bracket.
Some annuities even offer a guarantee on your principal. With just those factors in mind hopefully you can see why annuities are a vital tool in planning your retirement years. After all, who wants to run out of money in their eighties?
**Quick Disclaimer**
As with anything that involves your money make sure you perform due diligence as well as consult with licensed professionals when considering purchasing any financial product or making any investment. Read everything you can, ask every question you want and confer with multiple licensed professionals to make sure you understand everything if you have to.
Financial Planning Through Annuities.
Don’t be the one who hasn’t started planning your retirement now that you know how annuities work. If nothing else start looking at ways to start saving for retirement today. There are methods for annuitization that also help you avoid tax liability.

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