One way that many people are financing their retirement plans is by investing in a life annuity. The individual contributes during their working life when they have steady income to this fund. The difference between investing in an annuity and socking the money into a savings account is that your investment will grow and earn income, as well as the benefit that the investment money is tax-free until you withdraw it.

Once you retire you can receive payments, at this point the money is considered income and will be taxed only as that instead of a capital gain. Once you begin receiving payments from the life annuity, you will have a steady income to depend on throughout your retirement to supplement the social security and assist in paying the medical expenses that Medicare does not cover. If you are preparing for retirement and have a lump sum of money saved up, you can also purchase a life annuity with a one-time payment instead of paying in over the years.

There are many options, levels and types of life annuities that you should discuss with your financial planner, and family and insurance company to ensure that you make the best choice for your retirement expenses.

There are disadvantages to a life annuity, but if you are truly planning to use it for retirement income, you probably will not encounter them. The main disadvantage to a life annuity is if you withdraw the money early there are penalties. When setting up the life annuity payments make sure that it is money that you can spare to prepare for your future. This way, when you reach retirement age you will be fully vested and will have established the full earning potential of the annuity. This means that you will have reliable steady income once you stop working. Your life annuity if invested well can finance your housing, food, medical bills and even travel once you retire.

A life annuity can be set up to pay you periodic payments throughout your life and even allow payments to continue to your beneficiaries or spouse for several years after your death. Placing your money in a savings account is good if you are saving for a specific purchase or expense, but for retirement planning you want to place your money in a life annuity where it can grow and will be there to take care of you when you retire.

You should review the complete plan, considering such factors as the guaranteed interest rate, the surrender charges, and the administrative and maintenance fees. A high interest rate during the first year is not always the better choice. This is especially true if the interest rates drop to a low minimum rate the next year with high surrender charges and additional fees.

For more information and resources retirement plans, life annuity, annuity, annuities, immediate annuity income, annuity contracts, annuity calculator, annuity company, supplemental income, investment annuities visit http://www.buyapension.com

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By Andrew Richardson