Building a Nest Egg with Better Benefits
By Contributing Reporter, Darrel Richter

Eight years ago, John and Natalie Davis of Columbus, Ohio, were newly married with a son and a daughter about to enter their lives. At this point, they were in their 30s and already had a 401K plan set up, but were looking for an investment that could do a little bit more to ensure that they maintained a comfortable retirement many years down the road.

“John’s family had taken great steps to set up their own retirement plan,” said Natalie. “So we really felt like we needed to make sure that our retirements were equally taken care of.”

The Davises consulted a financial advisor who in turn introduced them to the world of annuities. John and Natalie had currently held aggressive investments in the stock market but they were more interested in a lower-yielding and more dependable investment that would secure their retirement funds.

“Our biggest concern was that annuities seemed like such a complicated investment,” said Natalie. “But in the past eight years our annuity has earned almost $40,000 from just a moderate start. we felt much more comfortable when we saw how it was working for us.”

Today, John and Natalie’s retirement plans seem more clear than they ever expected. The Davises know that by investing in a variable annuity their money is growing deferred of any taxes and is insured, too. most importantly, by setting up their annuity the couple feels more comfortable facing life after their children move away from home.

“Initially I was totally against the idea of putting our money into an annuity. but now I realize how important it was to start investing early,” said Natalie. “It’s great to know that our future is in a safe place. It allows us to focus even more on the future for our children.”

The Davises’ case is just one example of how convenient annuities can be for the investment of retirement savings. In a time during which a growing number of individuals are concerned with how they can guarantee a comfortable retirement, the question of how to invest wisely, now more than ever, is being answered with annuities.

“Within the last two or three years the demand for annuities has been steadily increasing,” said Judd Potts of The Columbus Financial Group.

“Millions of people are choosing to invest in annuities because it’s a tax deferred investment that is designed to provide better income for retirement.”

How does a variable annuity work? Once money is allocated to an annuity, it’s invested into five to 20 subaccounts of stocks or bonds. much like a mutual fund, an annuity earns the interest from a number of stock or bond portfolios. but unlike a mutual fund, all the gains made through an annuity are tax free until an investor decides to liquidate the account. Money is only taxed as it is withdrawn from the account. Preserving the investment from annual taxes helps an annuity grow at a quicker rate than any other taxable account.

Annuities pay back any time after their investors reach 59 ½ years old. The account may be liquidated in full or in periodic payments. Persons who withdraw from the account before this age usually suffer a surrender charge of six to nine percent of the annuity’s market value. this likely will make a dramatic impact on savings. If an investor expects to draw from his or her account before this age, an annuity is clearly not the right investment for them.

“Along with being a tax deferred investment, annuities are beginning to offer more and more better benefits,” said Christy Bordas, investment consultant at McDonald Investments in Columbus, Ohio.

One such feature available in an annuity is the added death benefit. In a few words this benefit guarantees that upon the death of the investor, his or her beneficiary will receive either the annuity’s market value or at least the amount of the original investment. this is a good feature because annuities do not guarantee financial gain since they rely on the yields of stocks and bonds. so don’t be surprised if your annuity loses money from time to time.

If you’re considering whether an annuity is right for you, keep these points in mind:

• like a 401K or IRA, annuities defer taxes on your investment until money is withdrawn.
• An annuity account is managed like a mutual fund, but with no fee for switching portfolios.
• Investors will suffer a penalty fee for making withdrawals before the age of 59 ½.

Annuities are very popular due to their extra benefits. but don’t get carried away with annuity “extras.” more insurance benefits usually mean higher fees on the account.

Finally, before going headfirst into any investment, be sure to consult a reliable financial consultant. Word-of-mouth referrals are generally the safest bet when choosing a consultant.

Building a Nest Egg with Better Benefits