Many people buy annuities to give them retirement income for the rest of their lives.
An annuity contract can also be a safe means of building assets for other purposes
with a more limited time span.
An annuity has tax advantages. In a deferred annuity, the interest credited to your
account builds up free of current income tax. You pay no tax until you get the annuity's
benefits. But, if you withdraw the accumulated value of annuity contract before
retirement age, there can be significant tax penalties and current taxes that may
have to be paid.
Annuities can be used to fund an Individual Retirement Account. They also may be
used in Keogh-type retirement plans for the self-employed.
Who should consider purchasing an annuity? In addition to companies that buy group
annuities to fund their pension plans, the list is long. It includes many people
who purchase annuities because they do not belong to retirement plans or because
they want to supplement their pensions. The list may also include a person who has
sold his or her business, a couple that has sold its home, a widow or divorcee who
needs the most income possible, but wants safety in terms of monthly payments, a
grandparent who wants to provide for grandchildren or someone who has had a big
income for one or two years but who can't be certain about the future.