Tax deferred annuities can be useful in planning your retirement. If you are already putting the maximum into your IRA, 401K, or whatever tax deferred retirement plan is available to you, a next step could to start investing in tax deferred annuities. You do not get a tax deduction or any kind of tax break at the time you put the money into it, but the interest accrues tax free until you take it out. Upon retirement, you start drawing periodic payments, and of course there's no tax on the principle because you have already paid tax on it. You just pay tax at that point on the part of each payment that represents interest. Not quite as good as a Roth IRA - with that, you never do pay tax on the interest.
No, the one I'm not worried about. Once you start receiving payments on an annuity, the payments stay the same. It's backed by an insurance company. The stock market, on the other hand . . .
+1 for Clark Howard's web site. For many people an annuity is NOT the best route to take. Very often there are BIG fees associated with the 'yearly upkeep' of the annuity. Caution & Education are key here.
Very true, you need to understand all the details of your contract. Another down side is the same point that is the "up" side right now - the payments don't change, in good times or bad. So the same feature that is an advantage in some economic conditions, can be a real disadvantage in inflationary times. Each individual needs to carefully consider their own situation. The importance of diversification cannot be overstressed. Nor can having a financial adviser you really trust.
