How does guaranteed income for life sound? Unless you have all the money you could possibly ever need, it probably sounds great. But surprisingly few people know that you can get income for the rest of your life by purchasing an annuity.

Annuities aren't something we hear about every day, but they are widely available. And they offer benefits that make them quite attractive to certain types of investors. They may be used to reduce tax liability, save money while earning interest or receive regular payments upon retirement.

Annuities are contracts between investors and insurance companies. The investor may make one large payment or a series of contributions to the annuity. The insurer then makes periodic payments to the investor. These payments may begin right away, or they might begin at a set date in the future.

Payments from the annuity can be disbursed over a period set forth in the contract, or for the insurer's and/or the insurer's spouse's lifetime. Either way, the annuity earns interest for the investor. But those who purchase lifetime annuities may collect more or less than the full amount, depending on their life span.

Benefits of Annuities

For those who are looking for a way to defer taxes on investment earnings, annuities are a good choice. Interest earned is not taxable until money is withdrawn. Retirement accounts also offer this benefit, but there are limits to how much one can contribute to them each year. With annuities, there are no such limits. And in the case of annuities, there are no penalties for withdrawing money before you reach a certain age.

Investing money in annuities is also inaccessible to creditors. This is because that money technically belongs to the insurance company from which you purchased the annuity. Creditors may, however, be able to take a portion of any payments you are receiving from the annuity.

One thing that concerns many investors about annuities is the fact that they could lose their investments if they die soon after starting a lifetime annuity. This can, however, be prevented. Most insurance companies offer the option to buy a guarantee period with their annuities. If you do, the insurance company will make payments to your designated beneficiary for the duration of the guarantee period if you die. Like life insurance benefits, annuity payments are not governed by wills and do not go through probate.

Annuities are often used to supplement 401K and IRA retirement distributions, but they may also serve a number of other purposes. But no matter how they are used, they offer a number of attractive benefits. If you are interested in an annuity, your insurance company can help you determine whether it is the right investment for your needs.