Fixed annuities have long been popular as an alternative to certificates of deposits, money market accounts, and other fixed interest savings vehicles. By purchasing a fixed annuity from a reputable insurer, an individual is buying a savings vehicle with a generally above market tax-deferred return while guaranteeing the principal. This security is backed by the strength of the insurance carrier who issues the annuity.

The benefits of owning a fixed annuity, however, are much greater than simply tax-deferral of earnings and above market interest rates. For most people, their greatest risk in retirement is outliving their assets. Based on current life expectancies, new retirees can expect to live 20+ years if they retire at age 65. Many people live much longer. Consider the case of John McMorran, who was the oldest living American until he died in February 2003--at the age of 113!

Let us not forget that annuities were originally created to manage the payout phase of retirement. They were not conceived to be simply tax-deferred accumulation vehicles. The accumulation aspects of annuities have been promoted frequently, and, hence, most investors are only familiar with this tangible feature.

A fixed annuity can significantly boost retirement security by guaranteeing a lifelong stream of income. When income payments begin, the insurer, not the individual, assumes all the risk. The individual is relieved of worrying about living too long and prematurely liquidating his retirement nest egg. Payments can be arranged to be paid out over one's lifetime only, or for a certain period, or over joint lifetimes. Keep in mind that the more risk assumed by the insurance company, the lower the payment.

Many retirees live on the verge of poverty simply because they are afraid to tap into their principal, and rightly so. After three years of negative stock market performance, an average investor may have lost 20-40% of his portfolio. Now consider the impact of withdrawing money for living expenses out of one's portfolio during a bear market. In this scenario an individual's retirement savings could literally be wiped out within 3-5 years.

Fewer Americans than ever before have defined benefit pension plans, other than Social Security, that guarantee lifetime income. Still fewer work for an employer offering a pension plan long enough to earn a meaningful benefit. New age cash balance pension plans offer little in the way of a guaranteed income stream to loyal workers.

More likely than not, many Americans approaching retirement are on their own in preparing for their income needs. With some $4.9 trillion tied up in 401(k)s and IRAs, compared to only $1.8 trillion in pension plan benefits, Americans need to create their own personal pensions. A fixed annuity offers a distinctive and viable method for doing just that.

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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