If you are researching options for retirement savings and financing, chances are you have come across annuities as one of the many options. An annuity can be described as a pension that you buy for yourself that can allow you to have a guaranteed income for as long as you live. There are several types of annuities, including immediate annuities, fixed annuities, and equity indexed annuities. To help you determine if an annuity is right for you, think about some of the benefits of annuities.

One benefit of having an annuity is that it will allow you to have a lifetime income. And, this income is protected from stock market fluctuations, personal crises, and other unforeseen circumstances. For example, with an immediate lifetime annuity contract, you are guaranteed monthly income payments for as long as you live. The implied risk of you living a long and happy life is borne by the insurance company providing the annuity. While social security and pensions offer a comparable form of retirement income protection, these are both limited in their dollar amounts. Conversely, the only limit to the size of your periodic annuity payment is the amount of money you have to invest in purchasing your annuity now. Another benefit, especially for older retirees, is the older you are, the larger your monthly payments will be for the same amount of money.

Another benefit of purchasing an annuity for your retirement is an annuity can offer inflation protection. You are allowed to create customized annuities to ensure that your monthly paycheck will keep pace with the cost of living and the lifestyle you desire. This feature of annuities is extremely important because inflation can have an overwhelming effect on your assets. The only drawback downside to adding inflation protection to your annuity contract is that it will cost you more, either in the initial cost of the annuity or in lower starting payments to begin with.

Purchasing an annuity for your retirement will also offer the benefit of principal protection. This means that the amount of money you invest in the annuity can never be lost. This is one of the best features of fixed and equity indexed annuities. For instance, the value of the annuity can be guaranteed to be at or above the amount of money invested in purchasing the annuity. You can guarantee that you (or your heirs) will receive back at least as much money as you invested in the annuity. You will not find many other investment opportunities, retirement or otherwise, that offer this kind of principal protection.

Yet another benefit to choosing an annuity for your retirement income is tax efficiency. The purchase of an annuity with other qualified retirement savings such as a 401 K or IRA funds can save you money on taxes as opposed to taking a lump sum payment. You may even be able to transfer qualified funds into a qualified annuity without any tax penalties. You only pay taxes on the income the annuity provides.

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