As your time for retirement is about to come, one option that you may have in mind is purchasing a retirement annuity. However, you may have heard something unfavorable about this game plan that is keeping you from pursuing your plans.
Now you’re confronted with a choice whether you should invest in this kind of retirement strategy, or put your money in a Gold IRA.
Why people buy annuities
Americans who are retiring at the age of 55 think of buying annuities under the following conditions:
• When there is a current trend of inflation, and it is projected to last for a long time.
• When there is no tendency for interest rates to rise up in your lifetime.
• You think that the value of the currency you have invested in has no tendency to decline.
However, when the stability of the institution becomes a question due to inflation, increased interest rates and currency devaluation, it could bring you great losses.
How an individual retirement annuity differs from an individual retirement account
Retirement annuity is considered as an insurance product that guarantees your income after retirement. In the case of an IRA, it is an individual account that allows you to put your money in other investments such as precious metals like gold, annuities, real estate, bonds and stocks.
Risks of annuities
When you buy an annuity, you pay money upfront in one lump sum. You then get a certain sum of money every month for your lifetime. Under the basic annuity, the amount that you receive per month will never change. However, after you die, nothing is left in your initial investment.
That means, if you die after a few months from buying it, the company will keep the money you have invested. Another risk is that just like a long term bond, annuities can be hit severely by increasing rates of interest and inflation.
Retirement annuities are like insurance products that you have to pay taxes for
One of the disadvantages of purchasing an annuity is that you have to pay corresponding taxes on all the gains. When you liquidate your annuity, it follows that the gains will be added to your income. In effect, you’ll be moved to a higher marginal tax rate based on your total earned income.
It simply means that you will not only pay the tax on your annuity gains, but also a higher tax on the total of your ordinary income which can surely hurt your pocket.
There is no doubt that annuities are regarded as insurance products in which you have to invest a large amount of money in order to get a corresponding return of investment on a monthly basis. This is acceptable if your money is safe, but the problem is that it is not.
Nothing can guarantee your annuity because the insurance companies that handle them have statutory rights that protect them from liability in case they are not able to pay claims due to bankruptcy.
How an individual retirement account allows you to invest in precious metals like gold and silver
In 1997, the inclusion of gold and other precious metals in IRA as investment was authorized by Congress based on the following reasons:
• Considering that gold is not dependent on traditional investments such as bonds and stocks, the market prices for gold tend to be more stable and favorable. This has been proven over the past several years.
• Precious metals have less volatility in the market, and they possess greater returns on a long term basis unlike stocks and bonds.
• Market gains from precious metals are exempt from taxes on capital gains.