Annuity market overview

An annuity is a contract between the annuitant and an insurance company that promises to pay the annuitant a certain amount of money, on a periodic basis, for a specified period. The annuity provides a kind of retirement-income. Typically, annuities are purchased by investors who wish to guarantee themselves a minimum income stream during their retirement years.

Most annuities offer tax sheltering, meaning your contributions reduce your taxable earnings for the current year and your investment earnings grow tax-free until you begin to draw an income from them. This feature is very attractive to young investors, who contribute to a deferred annuity for many years and take advantage of tax-free compounding in their investments. Most investors share the same goal of long-term wealth accumulation. Early withdrawal can be subject to penalty however most annuities have provisions that allow about 10-15% of the account to be withdrawn for emergency purposes without penalty.

The primary factors taken into account in the calculation are the current dollar value of the account, your current age because the longer you wait before taking an income, the greater your payments will be. Annuities can have other provisions, such as a guaranteed number of payment years. If you die before the guaranteed payment period is over, the insurer pays the remaining funds to the annuitant's estate.

Mainly there are two types of annuities fixed annuity and variable annuities. According to your needs and priorities you will have to determine whether you choose a fixed or variable annuity. You should also thoroughly discuss about each and every aspect of annuity contract and your expectation with your agent.

Annuity could be highly beneficial for you if you contribute to the annuity for a long period and wait to withdraw funds until retirement. You also get peace of mind from an annuity's guaranteed income stream, and the tax benefits of deferred annuities can amount to substantial savings. Be sure to consider annuities as part of your overall investment strategy, as they add more value to your retirement in more ways than other options.