Growing your retirement savings is only one part of planning for your future. Have you thought about how you'll turn your "nest egg" into a monthly retirement income? Annuities are long-term savings vehicles designed to do just that: grow and protect your money leading up to retirement, then turn that money into an income stream you can't outlive.

Annuities can be categorized as fixed or variable depending on how contributions are invested and what guarantees are offered. With a fixed annuity, an insurer guarantees to pay a specified rate of interest on the accumulated value of the annuity for a specified period of time. If converted to an income stream for life, the payments will be fixed. With a variable annuity, both the accumulated value and the periodic payments vary with the performance of a specific portfolio of investments chosen by the contract owner.

Generally speaking, a fixed annuity is a more conservative investment. With a variable annuity, the contract owner can have a hedge against inflation but assumes the investment risk. However, a variable annuity also can offer fixed investment options.

Variable annuities are much more than a simple investment. They are an investment program with an important insurance component. This insurance component does add certain costs. But for many investors, the numerous benefits a variable annuity offers - including insurance protection, guaranteed lifetime income options, unlimited contributions and tax-deferred growth potential - make up for the slightly higher cost.

Because it involves a long-term commitment, it's important that you are comfortable with your decision to invest in an annuity. Following are some things to keep in mind while considering an annuity:
 

• Is your investment horizon long-term?Remember that annuities are long-term retirement savings programs. You should feel reasonably confident that you won't need the money for other expenses before the surrender charge period expires.


• Have you made the maximum contribution to your employer-sponsored retirement plan and/or tax-deductible IRA?While variable annuities offer benefits these other retirement programs do not, it makes good financial sense to contribute first to these other retirement plans. Unlike an annuity, contributions to these other plans may be deducted immediately from your current taxes.


• Are you in a high tax bracket?The higher your tax bracket, the more you'll be able to take full advantage of a variable annuity's tax-deferred growth.


• Are the insurance company and investment manager solid?Your variable annuity is an investment of a lifetime. You should make sure the insurance company has a history of financial strength and the investment company shows a track record of solid long-term performance.