Skip to content

Cowart Insurance Agency Blog

All You Ever Wanted to Know About Insurance

Long-Term Investing With Annuities

Everyone has different investing philosophies, from “buy low, sell high” to “hold, hold, hold” and everything in between.

However, everyone can agree diversification is key. One way to diversify a portfolio is adding an annuity to the mix. Annuities are considered long-term investment vehicles designed for retirement. But, you may ask, why would I buy an annuity?

Tax-deferred growth

Annuities are unique from many investment vehicles in that they are considered tax-deferred, meaning the policy owner will not be taxed on the interest earned until time of distribution.

The power of tax deferral is significant. Imagine you had an investment that earned $5,000 this year. Normally you would be required to report the interest earned to the IRS, hence paying taxes on the interest earned at your current tax bracket. But if these funds were invested in an annuity, the interest earned would not be reported to the IRS, assuming no distributions were taken.

Annuities are designed to provide a source of income during retirement. You will more than likely be at a lower tax bracket during your retirement years. Therefore, you would receive tax savings from the tax-deferral status.

Estate planning

 Annuities can be utilized for estate planning purposes. At the time of claim, the cash value is paid directly to the named beneficiary. As long as a beneficiary is named, these funds will not go through probate or estate settlement. This may not hold true for many other types of investments.

Overall conservative investment

There are different types of annuities with corresponding risk levels, from conservative fixed annuities to those exposed to the market, such as variable annuities. Overall, annuities are considered to be a conservative investment because they are offered only by life insurance companies.

In general, as an individual nears retirement, their risk appetite tends to lean toward more conservative investments. Most prefer not to be exposed to the potential of a large loss of their nest egg. An annuity offers a more conservative approach that is appropriate to an individual with an investing time frame nearing or at retirement.