In any discussion of annuities and the opportunity they present, the concentration on seniors and large amounts of money would seem to indicate that annuities are suitable only for the rich or those who have managed to accumulate large sums of money for their retirement. While annuities can definitely be an important part of retirement planning for seniors, the truth is that the investor best able to take advantage of the tax-deferred growth aspect of an annuity is the younger investor. With the options of IRA accounts, 401Ks, and other types of investments, annuities are often not considered in the mix. However, because of their favored tax status, they can be a viable option as part of a balanced portfolio.

In the case of a younger worker, the long-term benefits of an annuity can be magnified by the time frame in which the annuity is allowed to work. The longer taxes can be deferred, the longer the magic of compounding is in effect, and the greater its impact. In almost all cases, the longer you can keep the money in your pocket, and take advantage of delaying taxes, the better off you'll be.

As an example, a 30-year-old worker in a 33% tax bracket (federal, state, and local taxes), having taken advantage of the 401K benefits available through his employer, and with an IRA fully funded for the year, can turn to an annuity for the tax-deferred growth that can have a major impact on retirement.

For the investor described above, a long-term investment of $10,000.00 into a taxable vehicle that pays 10% a year would grow to $19,120.00 after taxes at the end of ten years. However, placed in an annuity at the same rate, and enjoying the advantages of tax-deferred growth, $10,000.00 would grow to $25,937.00, a difference of almost $6,000.00 in just ten years. Carried out to the age of 65, the taxable investment would be worth $96,773.00, while the tax-deferred annuity would grow three times as large to $281,027.00.

The numbers reflect the long-term benefit of tax-deferral, one of the major attractions to IRA's and other tax-deferred investments that allow your earnings to grow unfettered for long periods of time.

You should, of course, make sure that necessary measures have been taken in regards to adequate life insurance protection and disability income protection before starting an annuity or any investment for that matter. With your insurance foundation covered, the use of an annuity as the fixed return portion in an investment account becomes an attractive option.

Liquidated earnings are subject to ordinary income tax, may be subject to surrender charges and, if taken prior to age 59 1⁄2, may be subject to a 10% federal income tax penalty.

Guarantees and payment of lifetime income are contingent on the claims paying ability of the issuing insurance company.

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