It really depends on your goals and your uses of these products. Let’s examine them in detail!
Babe Ruth and the origin of annuities and their history in America
The origin of annuities can be traced to the founding of the United States of America. The first recorded use of annuities was by the Presbyterian Church who used annuity concepts to provide for widows and retired ministers. Benjamin Franklin used annuities to provide for funds over a long period of time for his wife and for the cities of Boston and Philadelphia.
Babe Ruth, the famous baseball player, while enjoying a lifestyle of extravagance and excess kept the majority of his money in annuities. The crash of 1929 left many people broke and without funds but the Babe’s money was safe and secure. A true testament to the proper use of annuities
America owes much of its success to the far reaching use of long term savings provided by annuities.
Let’s examine annuities. Here is a definition of the two basic types of annuities: Immediate Annuity (income) and Tax Deferred Annuity.
Annuities can be fixed, variable and immediate.
The difference between deferred and immediate annuities is just about what you’d think.
With an immediate annuity your income payments start immediately. You decide whether you want income guaranteed for a specific number of years or for your lifetime. The insurance company calculates the amount of each income payment based on your purchase amount and your life expectancy. In the event of a pre-mature death, your beneficiaries can receive any unused funds.
A tax deferred annuity has two parts: the accumulation where you let your money grow, and the payout. During accumulation, your money grows tax-deferred until you take it out, either as a lump sum or as a series of payments (see immediate annuity above) You decide when to take income from your annuity and therefore, when to pay the taxes.
The payout phase begins when you decide to take income from your annuity. As your needs dictate, you can take partial withdrawals, completely cash-out (surrender)(1) your annuity, or convert your deferred annuity into an immediate annuity.
Annuities can provide safety, security and income. Before selecting an annuity, make sure you fully understand how the product works and that its benefits help you reach your goals.