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Though annuities tend to be advertised primarily to seniors, there is no reason why younger generations should not make the most of a potentially lucrative retirement investment. While employer-sponsored retirement savings plans such as the 401(k) or individual savings accounts such as IRAs are more commonplace, these types of savings vehicles come with some strict limitations. Both employer-sponsored and private retirement accounts have stringent contribution limits; there is no such cap on annuity payments. Annuities can be an excellent savings mechanism at any age, especially if you are looking to diversify your savings.

The type of annuity that works best depends on the individual's preferred amount of risk. Fixed annuities with a guaranteed rate of return are very stable, consistent investments. While the upside potential is limited as capital is invested in less volatile funds, if you invest in a fixed annuity at a young age, you are guaranteed to have a healthy nest egg upon retirement. For example, if you invest $100,000 in a fixed annuity with a guaranteed rate of 6.5% growth at the age of 30, you have a full 37 years before you reach the IRS-defined retirement age of 67. Over that period your initial $100,000 investment will grow to $1,027,863 even without any interest rate increases or additional contributions.

Variable annuities are tied to the performance of stocks or bonds selected according to the investor's risk tolerance, much like in a mutual fund. This means your capital is always at risk, but the potential for gains is greater. While a fixed annuity provides for a guaranteed minimum balance, given the greater number of years a young investor has before retirement, a variable annuity may end up being even more lucrative depending on the specific securities chosen for investment.

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