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Annuities: A winning gamble?


Over the span of a few lifetimes, the concept of retirement has undergone radical change in America. In my great-grandfather's time, retirement as we know it today didn't exist. He was a coal miner in Pennsylvania, where laborers worked until they died or became too old to wield a pick and shovel. There were no pensions, no paid vacations, no sick leave.

Then came the age of corporate benevolence. The introduction of such concepts as defined benefit pensions and Social Security paved the way to secure retirements for millions of Americans - retirements that lasted an average of eight years or so.

Today, we're living in a new age of retirement. Traditional pensions are rapidly disappearing, saving for retirement is pretty much up to the individual, and living for 20 to 30 years beyond normal retirement age is rapidly becoming the norm.

For those approaching retirement, one question looms large: How can I make sure that my money will last as long as I do?

One answer, at least according to industry sources, is known as an annuity. This form of investment vehicle, sold by insurance companies, provides the buyer with a guaranteed income for a lifetime, or for a specified number of years.

Annuities can be immediate, meaning payments start right away, or they can be deferred, meaning payments will begin at some specified time in the future. Most appealing to many of today's retirees is the immediate fixed annuity that provides fixed monthly payments that start right away. For the retiree with substantial 401(k) or IRA assets, all or part of that money can be used to buy an annuity from an insurance company that will deliver monthly payments for the buyer's lifetime, no matter how long he or she lives.

Of course, as is the case with any form of investment, annuities have their own set of advantages and disadvantages. Potential buyers of annuities should consider these questions:

Sweetening the pot

It's primarily for these reasons that traditional annuities have not met with the popularity that sellers would like.

That's why the industry is tinkering with annuity contracts that satisfy many of these shortcomings. For example, some companies are now offering annuities that will:

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