An annuity as a good alternative to a 401K plan

I know many of you have heard of the term annuity before, but probably don’t know exactly what it is, well that’s what I’m here to explain. An annuity is kind of like a life insurance policy because it can also provide income to the policyholder while living instead of when one is deceased. An annuity makes constant payments during a set period of time that’s established. Now that we all know what an annuity is, there is a popular one that I would like to share with you. The most popular annuity is called a fixed annuity. This kind of annuity has a set number of dollars that will be paid on a monthly basis once it starts. For this kind of annuity, the person who is receiving the payments knows the amount he or she will be receiving each month. Majority of the premiums that are paid from this annuity are invested in fixed income products such as government bonds. This annuity also has a guarantee interest rate for 10 years and then a new rate is used.Annuities are also useful for tax deferred income for retirement as well to supplemt as another form of income. Annuities can also be utilized to help fund pension plans, a company’s profit sharing plan, IRA’s, deferred compensation, 401K,etc. as far as Taxation is concerned as it pertains to annuities, the payments are a combination of Principle & Interest. The return on principal isn’t taxed and the earned interest is taxed. As we all know the market hasn’t been doing well for quite some time and many of our 401K’s aren’t performing that well, an investment such as a fixed annuity can be a great alternative to save and plan for retirement.