Annuities offer a long-term investment option

Personal Finance. By Katherine Vogt, AMNews staff. Oct. 11, 2004.

Annuities have become a popular investment vehicle. Physicians may find them attractive because they can be used as an asset protection tool. And those who need to sock away extra money for retirement may like investing in annuities -- as long as they don't need immediate access to their money.

Annuities are essentially contracts between an investor and an insurance company to grow retirement money while deferring taxes. In at least 14 states, annuities are protected from creditors, meaning they can't be touched in cases such as bankruptcy or malpractice judgment.

But the key word is "deferring." The money you contribute may initially be tax-free, but once you take money out of an annuity, you're hit with income taxes on it. Add another 10% penalty if you take the money out before age 59½.

An annuity, like an IRA, can't be touched until then without penalty. But unlike an IRA, or a 401(k) plan, there's no maximum to what investors can put aside in an annuity.

An annuity can be a good investment, "but it certainly is not a panacea of investments, and certainly no doctor should be taking all of their money and putting it in annuities," said Marc Singer, a partner of Singer Xenos Wealth Management in Coral Gables, Fla., a firm that has mostly physician clients.

Annuities have become a hot commodity. Assets in the most popular type, variable annuities, increased by 20% to about $985 billion in 2003 from 2002 figures, the U.S. Securities and Exchange Commission said in June.