Some consumers know how to safely use annuities to provide themselves with a source of income for retirement. An annuity is a contract between you and an issuer in which you agree to give the issuer principal. In return, the issuer guarantees fixed or variable payments over time. Annuities are not insurance policies, they are issued by insurance companies and are used for income during retirement. They are similar to a retirement plan because funds can be in a lump sum or a little at a time. The capital in an annuity grows and compounds tax-deferred until making withdrawals. Unlike retirement plans, there is no limit to the amount that can be invested in annuities.

Due to the large number of annuity products on the market, selecting an annuity can be a difficult process. Usually when selecting an annuity for retirement, there are these choices:

*Time for payout, which is immediate or deferred. For an immediate annuity, the investor begins to receive payments immediately upon investing and who need immediate income from their annuity. In a deferred annuity, the investor receives payments later, usually at retirement.

*An investment type which is fixed or variable. Fixed annuities are invested mostly in government securities and corporate bonds. They offer a guaranteed rate usually over one to ten years. Variable annuities allow the investor to invest in a selection of sub-accounts like securities portfolios, fixed interest accounts, and money market securities for retirement. Sub-accounts are tied to market performance, and often have a corresponding managed investment portfolio after which they are modeled.

*Another choice is the liquidity option. Most annuities allow you to withdraw either your interest earnings or up to 15% per year without a penalty. However, any withdrawal from an annuity may be subject to taxes and a 10% federal penalty if taken before age 59. Most have a surrender charge which is a penalty for making an early withdrawal, above the free withdrawal amount. This charge decreases over a seven-year period. Some annuities with surrender charges reward the investor by offering a bonus, for example, the insurance company adds on an average of  3% to 5% to the amount of the principal. Bonus annuities typically have slightly longer surrender periods, and some charge a higher fee than charged for a standard annuity. For those investors who often need access to their money, there are annuities without any surrender charges, but they do not offer bonuses, and may charge a higher fee than the standard annuity, in exchange for 100% access to your money.

There are several types of investment options, so investing is a very important decision to make. It must be decided how much to invest and where to invest it. Understanding each option, as well as the risks associated with each can often be difficult. For that reason, many consumers enlist the help of a financial planner. Three main types of investments are stocks, bonds, and cash equivalent. Consumers are able to invest in any or all three types directly or indirectly by buying mutual funds.

When investing in stocks, it is buying a share of ownership in a corporation and becoming a shareholder. Companies sell shares of stock to raise money for start-up or for growth and there are common and preferred stocks. Common stocks allow shareholders a percentage of ownership. For example, one share of common stock in a company that has 100 shares, the shareholder would own 1 percent of the company. Common stock shareholders have the right to vote on issues affecting the company. Having preferred stock usually does not offer voting rights. Shareholders are usually entitled to dividends which is the company’s profits distributed in cash. Preferred stockholders typically receive dividends at specified times and in predetermined amounts, and common stockholders may or may not receive dividends based on company profits. The investment returns and risks for both vary, depending on several factors like the economy and the company's performance.

When bonds are bought, it is money that is loaned to the government or to a company. They are issued for a set period of time during which interest payments are made to the bondholder. The amount of the payments depends on the interest rate established by the issuer of the bond, whether it is from the government or a company when the bond is issued. This is called a coupon rate and the rates can be fixed or variable. At the end of the set period or the maturity date, the bond issuer is required to repay the face value of the bond, which is the original loan amount. Bonds are considered a more stable investment compared to stocks, as they usually provide a steady flow of income. However, their long-term return probably will be less than that of stocks. Bonds can sometimes outperform a stock’s rate of return, depending on the particular stock. Bonds are subject to a some investment risks like credit risk, repayment risk and interest rate risk.

Cash equivalent investments, like passbook savings accounts, money market funds or certificates of deposit (CDs), protect the original investment and allows access to your money. These usually have a more stable rate of return. Yet the rate of return after taxes are paid is often low due to the pace of inflation. A passbook savings account, money market fund or CD may give a quick access to your cash and may provide more short-term security, but they are not designed for long-term investment goals like retirement. It is best to check the objective of the mutual fund to make sure it’s consistent with the goals you desire.

There are many retirement planning advisors that can help with areas like setting goals, accumulating wealth, retirement and tax planning, protecting assets, and many other financial needs. These professionals can make recommendations on how to manage savings, investments, or your overall financial picture. Understanding the full scope of their abilities and services is necessary when seeking their help.

A person must be specific in defining and articulating what they want for a financial plan. Professionals can help people organize their priorities, understand any risk, and set long and short-term goals that could be attainable and measurable. Some investments play an important role in helping to accumulate money, create cash reserves, or prepare for retirement. Helping ensure that a balanced portfolio is in place is what a good advisor can do. They can offer input about products like mutual funds, stocks, annuities, life and disability income insurance, and different retirement accounts.

A financial advisor can help people figure out how much should be saved for retirement, and the best way to do it based on their goals and their financial situation. They can also help find ways to reduce taxes, give up-to-date information about any new tax changes, and they can recommend strategies to help reduce tax damage to portfolios. They are great at suggesting some investments that are designed for tax reduction. They usually work hard to ensure your money works best for you. Protecting assets is important and to plan for potential disability or long-term care needs is helpful. Advisors can help calculate protection needs and can suggest solutions to have some security.

Estate planning is an area that often needs careful planning and an understanding of tax implications associated with decisions. Many advisors can work with an estate-planning attorney. They are trained to keep a plan current and appropriate to a client's life changes. These professionals are like money advisors. Ask any financial advisor for help planning and making financial decisions and they will give several options. Most charge a fee for their services, but professionals deal with finances every day and can give great input. Leaving some financial areas to chance, may not be good.