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Annuities

An annuity is an agreement between you and an insurance company. That agreement can take many forms and can be as complex or as simple as the underlying need. Fundamentally, an annuity contract is a vehicle used to accumulate assets for retirement and a vehicle for distributing income during retirement. You can buy an annuity with a single payment or you can fund the annuity with ongoing deposits, much like a mutual fund or savings account. The annuity is tax efficient because assets within the contract that are accumulating for retirement are not subject to current income taxes. That's an important point, as you will come to find out shortly.

Annuities have been around for centuries, dating back to the Romans who paid out annuity benefits long before the insurance industry opened its doors. The first insurance annuity was issued in 1759 to a group of Presbyterian ministers, but it wasn't until the early 1970s that annuities took flight as an investment tool. Before then, the focus was more on establishing retirement income, not accumulating assets for retirement. Both are offered today through hundreds of annuities with sales in excess of $200 million a year. Total annuity assets exceeded $2 trillion in 2002.


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