Annuities are intended to help you save for retirement and supplement your retirement income. Various types of annuities can make your retirement more secure by helping you do the following:
Save for retirement: Before you retire, fixed deferred annuities — which include CD-type annuities, market value–adjusted fixed annuities, and indexed annuities — allow you to earn a specific (or adjustable) rate of interest on your money for a specific number of years, tax-deferred. They’re also a safe place to park money during retirement.
Invest for retirement: Before you retire, variable deferred annuities — baskets of mutual funds, essentially — allow you to invest your savings in stocks or bonds while deferring taxes on all the capital gains, dividends, and interest that mutual funds usually throw off every year.
Distribute your savings: Most Baby Boomers who retire with six-figure balances in their employer-sponsored retirement plans won’t know how fast or slow to spend their savings. An immediate annuity or a variable deferred annuity with “guaranteed lifetime benefits” can provide structure to the process.
Insure you against longevity risk: Just as life insurance insures you and your family from the risk of dying early, an income annuity or an advanced life deferred annuity (ALDA) can insure you against the risk of living so long that you run out of money.
Manage your taxes: Everybody with a big 401(k) or 403(b) plan will retire with a massive income tax debt to the government. A life income annuity allows you spread that tax liability evenly across your entire retirement.
To encourage saving, Uncle Sam lets you defer taxes on the growth of your investment in an annuity. To discourage you from spending your savings before retirement, the IRS exacts a penalty for withdrawals taken from annuities (as well as from other tax-deferred investments) before you reach age 59½.
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Source:http://www.dummies.com/how-to/content/how-annuities-help-secure-your-future.html
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