Hello I am Fred Orentlich and I will be talking about annuities. Retirement annuities are one more option an individual investor has for saving for retirement. Retirement annuities function similarly to a traditional individual retirement account in that they grow tax-deferred while the investor is able to contribute earned income. But instead of an investor having to manage the money he or she has accumulated over the years once retirement age is reached, the retirement annuity owner can guarantee monthly income without having to worry about a loss of principal or managing the amount of money within the account. Retirement Annuity Details Just like standard annuities, retirement annuities can be purchased with incremental payments or with one lump-sum payment known as a single premium. When purchased with incremental payments, an investor can usually choose to contribute monthly, quarterly or annually, depending on whether or not the annuity is part of an employer sponsored defined contribution plan or a plan that is set up directly with an insurance company. Retirement annuities that are set up as part of an employer plan such as a 401(k) are funded with qualified money. Qualified refers to the fact that the contribution is made with pre-tax dollars, or dollars that are not taxed until the money is returned to the investor. All qualified money grows tax-deferred until the investor begins to receive distributions. Distributions from qualified retirement accounts cannot begin before age 59 ½ and must begin by age 70 ½. If an investor has contributed the maximum amount allowed to his or her employer plan and wants to save additional money for retirement, he or she can do so with post-tax, or non-qualified money. Non-qualified money is money that has already been taxed. It can be earned, and now part of a savings account, or it can be acquired by other means such as through the sale of property or an inheritance. What are the Advantages of Retirement Annuities The difference between traditional individual retirement accounts and retirement annuities is the way the payouts are structured once the individual reaches retirement age. With an individual retirement account, investors are required to withdraw an amount each month as dictated by Internal Revenue Service based on the amount of money that has been accumulated within the account and current life insurance company longevity projections. For example, if a male investor begins taking withdrawals at age 70 ½, the amount he must withdraw each year is based on the amount of money in each of his retirement accounts and his life expectancy, which is currently estimated to be 78 years of age in the United States. Retirement annuity payments, however, are determined at the time the contract is written. While the amount of each payout may be based on life expectancy if the investor chooses guaranteed payments for life, it is not based on the value of the account. In other words, individual retirement accounts are assumed to have a finite value whereas annuities are not. Individual retirement accounts can be depleted. Retirement annuities with guaranteed payouts for life cannot. Therefore, the risk of outliving one’s money is far greater with only traditional individual retirement accounts. The owner of a retirement annuity in effect transfers the risk of outliving his or her money to the insurance company. One further advantage of retirement annuities is that there is no limit to the number of annuities or the dollar amount of each that an investor can own. Who Should Buy a Retirement Annuity Investors concerned about outliving their savings should consider a retirement annuity. And, investors who would rather leave money management to professional money managers rather than having to do it themselves can also benefit from a retirement annuity.