When planning for retirement, people usually go with the trend and choose to invest their money in retirement annuities without much thought. And retirement annuities are certainly favorable because they allow you to enjoy several tax deductions. But there’s one thing that most people fail to consider when investing in a retirement annuity: if something happens to them prior to the end of the contract, the loved ones they’ve left behind will inherit NOTHING.

And so, insurance companies have created modified endowment contracts as an alternative for people with enough foresight to plan carefully for future retirement.

There are a number of advantages that you can enjoy with a modified endowment contract or MEC. Like retirement annuities, they come with considerable tax benefits and allow you to make withdrawals in cases of emergencies. They also allow you to choose between fixed and variable rate options.

Unlike retirement annuities and other retirement plans, modified endowment contracts will not have to be subjected to probate.

As long as no one contests anything, the earnings from your MEC will go directly to your heirs or beneficiaries. Also, modified endowment contracts can be purchased by certain kinds of trusts without eliminating their tax benefits. Lastly, the cash value from MECs build up more quickly than most.

However glorious modified endowment contracts sound, they are still not for everyone. They are first and foremost designed to provide income after retirement, so withdrawals that are caused by emergencies will be slapped with hefty fines.

In the end, the rightness of choosing a modified endowment contract depends greatly on whether or not you have money you can afford to set aside until your retirement and if you have heirs to consider.

[image from Neighborhood Scout]