Things to Consider Before Buying an Annuity?

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There are many saving vehicles available today, your piggy bank, traditional passbook savings accounts, money market accounts, certificates of deposit, bonds etc. Many people today still don't realize annuity products are also included in this list. First, Let's Get Rid Of Some Negative Perceptions. The most common misunderstanding among the general population about annuities is you lose access to and control of your money in an annuity!

Annuities are risky investments! The insurance company can go out of business and you will lose your money! Let me tell you. Nothing could be further from the truth.

Annuities are contracts issued by insurance companies that grow tax deferred and offer a guaranteed rate of interest and guaranteed payout options. Access to your money within the annuity today is easier than ever, although many contracts still limit your penalty free withdrawal to 10% of the accumulated value per year. Recent changes in the industry make your money very liquid. Some companies even offer checkbook access. Some also offer a guaranteed income for life with out annuitization. That is an income stream that will never run out as long as you live. Additionally, the simple truth is not one person has ever lost a penny in an annuity due to a failure of an insurance company.

I will say you should keep in mind, the money you choose to place into an annuity contract should be only monies not needed for your daily expenses or any anticipated household needs or repairs in the near future. This is exactly what some of the uninformed have ignored, which has created some, if not most concerns about annuities.

Please be sure to always remember I told you this. "Use only what would be considered to be your "dusty money" in your long term savings plans, money you don't need to live. Now on to what you really want to know?

The key element I want to point out here is the interest earnings inside of an annuity contract/policy grow with a tax-deferred basis unlike other traditional savings accounts and most investments. Taxes are paid only when the money inside of the annuity is withdrawn. Usually later in life at a lower taxable income rate.

There are several advantages of tax-deferred annuities. Annuities offer very competitive returns that, most often exceed CD's, money market and savings accounts. Unlike other savings accounts and investments, these competitive returns are sheltered by taxes for as long as the earnings remain inside of the annuity.

This is what gives tax-deferred annuities their greatest advantage, the extra growth potential with the effect of triple compounding. What in the world is this triple compounding? Please let me explain

Einstein once said, "Compound interest is one of the greatest discoveries made by man". Not only does your account grow with the interest earned in the first year. The new balance is now compounded by and grows with the accumulated interest added and therefore grows on the new sum total in each of the subsequent years. Simply put, you earn interest on your interest or "Compound Interest".

Feroz Ahmed Bawany goal is to increase my knowledge and to understand the only civilized creations of Almighty Lord are HUMAN. He is a regular contributer to TRCB.com.

 

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