Advantages of Annuity Over Other Investment Tools

Jun 30, 2010 (Daily Independent/All Africa Global Media via COMTEX) -- Why annuity was included in the Pension Act

The need to be financially independent at retirement cannot be over-emphasised. In fact, one of the objectives of the contributory pension scheme introduced by the Federal Government under the pension reform programme was to ensure that every person who worked in either the Public Service of the Federation, Federal Capital Territory or Private Sector receives his retirement benefits as and when due.

To ensure that the aims of the pension reform are not defeated, Section 4 (1) (b) of the pension act 2004 stipulates that a holder of a retirement savings account upon retirement or attaining the age of 50 years, shall utilise the balance standing to the credit of his retirement savings account for annuity for life purchased from a life insurance company licensed by the National Insurance Commission (NAICOM), with monthly or quarterly payments.

Meaning of Annuities

According to AnnuityAdviceOnline.com, an annuity is a contract between an individual and an insurance company where the individual pays a premium and in return the insurance company provides regular payments, or payment can be deferred to a later date. Money is what ensures a secure lifestyle, thus, people want to invest their money in ways that will ensure that it grows and assures them of savings and security in the future and especially for their retirement.

Why investors usually opt for Annuities

The goal of most investors is to get a good rate of interest on their money whilst ensuring its security. Annuities are widely chosen by investors due to two basic reasons. Firstly tax is deferred on the savings until it is withdrawn and secondly it provides security and assures of income in the future. Furthermore there are usually no limits on the amount of money that an individual can invest in annuities. There are many annuities, which offer various features, and thus an individual can select an annuity that best suits his or her needs and requirements. There is no set age limit after which you have to begin receiving income from the annuities. In fact annuities provide investors the freedom to decide if they want regular income or would like a one-time payment at a later date. Even after the investor dies the beneficiary will continue to receive income from the annuity.

Why retirees should choose annuity

The basic purpose of working professionals is to provide a source of livelihood and security for themselves and their families. In a world where inflation and price rise is a certainty, it is essential that an individual save some part of their income in a manner that it works for them, provides tax benefits and provides substantial interest. The crucial question that arises is how to save your income in a manner that suits your financial situation and provides you maximum returns.

A secure future for the retirement years is essential and something that all working people should consider investing in. The different types of annuities available make it the perfect option for professionals of all ages. Whether it is a regular income that you seek, tax benefits or a retirement nest egg, annuities can make it all possible.

Why invest in annuity

This is like asking you why he must invest in your future. Annuities offer individuals a chance to secure their financial future and also provide tax benefits. Annuities have been around for a very long time. In fact they were offered in the Roman Empire where citizens could make a one-time payment and were promised a lifetime annual stipend. Financial stability is a key factor in the quality of life that one leads. It is important that working professionals invest in annuities today, in order to reap the benefits in their retirement years. With increase in life expectancy it is crucial that a person's savings last him or her for as long as they are alive. Furthermore in order to continue with a similar lifestyle as one has prior to retirement it is important to invest in a manner that the money grows well. Investing in annuities is a wise decision if you wish to be secure in the knowledge that your retirement years are taken care of.

Reasons to Invest in Annuities

Investing in one's future is probably one of the best ways to spend your money. The working years should ideally be used to create a retirement plan that helps keep those golden years secure and free of financial worries. Most investors wish to put their money in investments that offer them flexible terms and conditions, good rate of return and tax benefits. And these are also the reasons why people prefer to invest in annuities rather than in any other financial investment vehicle.

The top reasons to invest in annuities bring to light one important fact; annuities are ideal for each and every investor as they cater to their specific financial needs and requirements.

Annuities are an ideal investment plan for every person who wants to ensure the financial stability of their retired years.

The annuity is safe as long as the insurance company is solvent.

It is important for all working professionals to invest in an annuity in order to save up for their retired years and to ensure that they are comfortable and enjoyable.

Comparing Annuities with other Investment Tools

With annuities, investors are assured a pre-determined rate of return on their investment. Annuities are ideally used to create a retirement plan that ensures that the investors have a regular source of income after retirement. The annuity is perhaps one of the few financial tools that has such a long and rich history and yet has been reinvented and modified in order to satisfy the changing financial needs of people.

Annuities are special in many ways and in comparison to other traditional investment tools they offer versatility and flexibility to the investors. Investors prefer annuities to traditional investment tools as they offer a better rate of interest than conventional investments and due to the fact that they are tax deferred they allow the investment to compound.

Advantages of Annuities over other Investment Tools:

No other investment vehicle offers the kind of diversity and security that annuities provide. They allow individuals to invest their savings in a manner that is suitable to them, i.e. with a one-time premium payment or by repeated premium payments over a period of a few years. One can decide the amount that has to be invested according to the amount of money you wish to receive when the annuity matures.

Annuities are tax deferred and this feature allows the investment to grow well. In case of annuities the gains are taxed when income is received from the annuity or when one withdraws form the annuity. On the other hand the gains from most traditional investment tools are taxed on a yearly basis. Also the gains from annuities are taxed as ordinary income.

Annuities offer various pay out options to its investors and you can choose to receive on a monthly, quarterly or yearly basis. Also you can select the option of receiving income for the rest of your life or for a fixed period of time.

Annuities are ideal for all types of investors, small and big. Whether you are a conservative investor or someone who also wants to benefit from the good performance of a stock market index, annuities can help you invest your savings accordingly and create a secure future for your retirement.

Conclusion

Saving and investments are necessary to safeguard our future from unexpected risks as well as to cushion ourselves from financial shocks. But at the same time, it is necessary to display an acute sense of financial prudence, especially, when it boils down to choosing investment tools.

While it is true that investor has many investment options at his disposal today, annuities, however, offer many advantages over other form of investments. So, if you are looking for a steady income coupled with a safety cover over your principal amount, then nothing can beat annuities.