Debt Prevention, Retirement Savings and Annuities

As a whole, past generations were not required to give the financial aspects of their retirement much thought. Many people worked their entire career at one job and when they retired they were provided with a company sponsored pension. This revenue stream coupled with social security payments were adequate to meet the average person's needs. Times have certainly changed. In today's world most companies do not offer pension plans and there is much speculation that social security may not be around much longer. A person's ability to retire without going into debt will depend on the amount of personal savings that they are able to accumulate. There are many options available today for use in achieving retirement goals. One such investment vehicle is the annuity.

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• Earnings from annuities grow tax free until withdrawn at retirement.
• There are no annual contribution limits. This gives investors the option of investing the maximum in their 401K and IRA plans and placing additional moneys into an annuity.
• Unlike mutual funds annuities offer beneficiaries a minimum of the amount of money that was paid in. Mutual funds offer beneficiaries the amount of the fund at the time of death.
• Annuities come in fixed and variable versions. Fixed annuities offer a fixed rate of return. Variable annuities offers choices in where an individual places his investment. There is a higher potential for gains along with a higher risk.
• You can choose the payment option. Annuities offer the individual the choice between a lump sum payment or a fixed payment for life.

• The major disadvantage associated with annuities are the large fees. The fees will generally overshadow any savings that are gained through the tax deferred earnings.
• Annuity gains are taxed at a significantly higher rate than mutual funds.

For the vast majority of people an annuity is not the best choice for a retirement investment vehicle. The cost of fees coupled with the high tax rate overshadow the advantage of tax deferred savings. Additionally, there are other investments that are currently available which offer the same tax deferred benefit. People would be wise to explore other options before deciding to invest in an annuity plan.

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About the author:

Mark Carney is a professional consultant with First American Debt Consolidation and Loans, a debt consolidation service specializing in financial education, credit counseling, and debt management services nationwide.