Fixed Annuities: Retirees Are Pouring Billions of Dollars into Them, Why?

Article submitted by Steve M. Dabbs, CAA(r) at Safe & Sound Income.
For more information, he can be reached at 480-203-9592.

In 2003 sales for individual fixed annuities reached $87.6 billion, with the vast majority purchased by retirees. Index- Linked Annuities, which were first introduced in 1995, made up $14 billion of the total fixed annuities sold.

So, why all the interest in Annuities today? There are several reasons for this surge in annuity sales. Annuities offer Safety of your principle and earnings, Tax-deferred growth, Funds Availability, Stream of income you can never out live and Competitive yields.

Due to the market crash following the turn of the century, retirees are leery of having their retirement nest eggs at risk in the stock market. Retirees are drawn to fixed annuities because they are a conservative alternative to Bank CD's. As one retiree put it "I can not afford to lose one dime in the market, I have to be very careful where I put my money, it is all I have." Janice W. Mesa, AZ..

Annuities are considered a very safe and secure place to keep money. They are free from stock market losses. Annuities avoid probate unlike Bank CD's and money market funds. Annuities are the only financial vehicle that can guarantee an income that you can never outlive, you never have to worry about running out of money. One common misconception by some seniors, is upon their death the annuity funds are kept by the insurance company. This is not true, today's modern annuity designs allow the entire balance to pass to your heirs, either in a lump sum or as a guarantee stream of income.

Taxation is also sited as a primary reason why so many retirees are looking to annuities as a safe haven for their retirement savings. Under current tax laws, up to 85% of your social security income is subject to tax. Many seniors make the mistake of putting money in Bank CD's, interest bearing checking or money market accounts. They end up paying taxes on interest they never used as current income, causing their Social Security Income to be taxable. An annuity avoids this because the interest is tax deferred until it is withdrawn. You can also use what is called a 1035 exchange and move all or part of your savings from one annuity to another without incurring any taxes. Today's annuities allow you to have greater control when you choose to receive your interest and principle.

Funds in annuities are accessible too. Depending on the annuity, most allow interest income in as little as 30 days and up to 10% penalty free withdrawal. Some have a check book option so that when you need money, you just write yourself a check.

With the introduction of the hybrid annuity product, the Index-Linked Annuity, guarantees a minimum return and at the same time offers an opportunity to benefit from increases in the various market indexes. You can have upside potential without any downside risk. With Index-Linked Annuities, high potential returns of 7% or greater are not uncommon.

Keep in mind annuities are like snow flakes they look similar but with closer examination they are all different. It is important that you work with an agent that is an annuity specialist. One way is to look for agents that have a Certified Annuity Advisor(r) designation. They can assist you in finding the best product for your particular situation.