Purchasing a Deferred Annuity to Augment Your 401k or Pension Savings

There exists certain degree of profitability and reliability with 401K or other pension saving plans but one must not feel satisfied with these limited and much lesser amount of benefits. Deferred annuities have so much more to offer and are considered as one of the most profitable option for augmenting the 401K or pension savings.

The deferred annuity is a type of long-term personal retirement account designed to grow the funds of your pension with the tax-deferral option. In addition to be one of the most profitable investment growing options, it can also provide a stream of income when you retire. Deferred annuities are divided into two main categories: CD and traditional fixed deferred annuities.

This deferred annuity allows your earnings to compound over time without being eroded by taxes, thus giving your investment the potential to accumulate more than you would in a taxable account and you don't have to pay taxes on annuity gains until you take income. Generally there are two phases in an annuity. The first phase is savings and investing phase and second is retirement income phase.

In the first phase i.e. saving and investing phase your assets are accumulated for potential growth. There is no annual limit on contributions to deferred annuity. If you're able to put aside more savings for retirement, an deferred annuity could help you grow that money more tax-efficiently and during the second phase i.e. retirement income phase you have a choice to structure your accumulated income. You can elect to receive these payments for a set time period, or you can choose a guaranteed income for life.

The CD type fixed annuity is a type of annuity that makes you sure or guarantees rate for each year may be up to ten years. This annuity is like certificate of deposit that you can purchase it from a bank. You will get a guaranteed fixed interest rate for a time period that is specified. The specified period of time is what you choose at the time of set up of annuity that is known as rate guarantee period. The rate of guaranteed period selected by the annuitant does not allow changing the rate of interest.

A traditional fixed deferred annuity, sometimes referred to as an annually renewable deferred annuity, earns an interest rate which is reset each year at the discretion of the insurance company.