How do you protect your hard-earned savings during these difficult and turbulent economic times? Money you need for retirement or college tuition for the children, for that vacation home at the shore, etc. The funds must be there when the time comes, no matter what happens!

The collapse of the dot-coms, the steep decline in the value of the stock market, corporate scandals, economic downturn, and the war in Iraq, have all come together to seriously erode investor confidence. Even the lucky few that have managed to hold on to their money are confronted with the difficult question: Where can I put my money now?

Happily, there is a place where today's harried investors can put their money without having to rely on tranquilizers every night to get to sleep. It is called a fixed annuity. While annuities are not sexy and hardly ever come up in conversations about investments at cocktail parties, they are the safest place to put aside serious money for future needs. Corporate bonds, municipal bonds, variable annuities, government notes, mutual funds, CDs or any combination of these do not offer the unique benefits, safety, and tax deferred accumulation of annuities.

There are many types of annuities available. These include fixed, single premium deferred contracts, annual deposit deferred annuities, and single premium immediate annuities. The latest and perhaps most popular choice is the new indexed annuity.

During the go-go years of the stock market, insurance companies introduced another type of annuity which pays a variable interest rate rather than a fixed rate in order to compete successfully with other investment instruments. These are called indexed annuities.

Indexed annuities give the buyer another special advantage. These peg the current interest rates to some independent index such as the S&P 500. For example, if the S&P index grows 9% during a contract year, the insurance company might credit 50% or more of that growth as the interest rate for those annuity contracts or 4.5%. If the guaranteed rate were 3%, the contract owner would enjoy a bonus of 1.5% over the guaranteed minimum rate during that year. However, if the index only grows by 5%, and 50% was the allocation or 2.5%, the company would credit the guaranteed rate of 3%! With this type of two-tier interest rate contract, the buyer has the best of both worlds.

Fixed annuities provide a predetermined rate of interest that is contractually guaranteed. Most fixed annuity contracts typically have a fixed guaranteed rate of 3, 4, or 5 %.

Whether fixed or indexed, all annuities provide for either a lump sum or annuitized (monthly, quarterly, annual payments) withdrawals. Ordinary income taxes are due at the time of the withdrawal. Keep in mind that in most cases your tax bracket will be lower during retirement than in your working years. There may be an additional tax advantage by drawing the funds out periodically rather than as a lump sum.

Furthermore, it must be remembered that the interest credited to either the fixed or indexed annuity accumulates on a tax deferred basis. Consequently, the funds grow faster and the accumulation is larger!

Should you put all your money in annuities? The obvious answer is no. Diversification continues to be the right approach to prudent investment and money management.

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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