Why Use Annuities To Fund Your Retirement

Posted on: 31 May 2023


Investing is crucial if you want to plan for the eventual day you retire. That's why it's important to look at all your options that can optimize how much you can save and reduce the taxes that you pay. If you're not sure what your next step should be to save for retirement, consider investing in annuities. They are a great way to take advantage of all the benefits you need for a fully funded retirement due to the following reasons. 

Tax-Deferred Growth

One problem with a traditional investment account is that you need to pay taxes on your earnings before you pick an investment. This causes you to invest less money when starting out, which leads to slower growth over time. You really want to consider an investment option that has tax-deferred growth, meaning you do not pay taxes on the money you contribute until much later. 

Capital Gains Taxes

There are various retirement accounts that allow you to maximize your earnings by not having you pay capital gains taxes. This happens once you finally sell a stock or mutual fund and receive a profit from the investment. It's a huge benefit when planning for retirement because you know that the amount of money that you have coming to you is not going to be reduced by future capital gain taxes. 

In addition, you do not know what the gains taxes will be when you eventually sell a traditional investment. Annuities can help protect you from future tax increases that can happen, which will put more money toward retirement.

Tax-Free Exchanges

Want to exchange one annuity for another? Know that the transfer is not going to trigger any of those deferred taxes that eventually need to be paid. You can change up your investment strategy as needed, especially as you get closer to retirement and want to change the annuities that you have. 

Lifetime Income

Annuities also have an option to receive lifetime income. The payout works a bit differently because there are partial taxes paid on the withdrawals. However, you can potentially receive more than what the annuity would be worth if it was completely cashed out as a lump sum. 

Taking the option for lifetime income also means that you can lower your tax bracket, so the taxes that you do pay will be less overall. Since reducing your tax burden is key, it's an option that is nice to have by using annuities.

Contact a professional to learn more about annuities