What Are Annuities? Are All Annuities Created

You may or may not have all the insurance you want, but there is one risk you cannot afford to ignore – the risk of outliving your assets and savings.

Scary, isn’t it? One way to overcome this risk is to purchase an annuity so that you can enjoy guaranteed income during your retirement years.

Now, the obvious question is – what are annuities?

An annuity is like a pension plan that you build for yourself.

You invest money that provides a monthly income. You have the choice to receive it for a specific period of time or for as long as you live.

Annuities can also protect your assets from market fluctuations, inflation and other unexpected crises.

The Good News First – Benefits of Annuities

The question of what are annuities has been answered. So, when you decide to buy an annuity, the significant benefits you can enjoy include:

Income for life: If you opt for an immediate lifetime annuity contract, you will receive income for the rest of your life. You probably think your Social Security and pensions may be good enough, but these are limited. With an annuity, as you grow older, your monthly payments will increase at no extra cost to you.

Protection against inflation: Inflation can upset all your savings plans. With an annuity tailored to your needs, you can make sure that your income covers you adequately. You will, however, have to pay more initially.

Protect your principal: Whether you choose a fixed or equity indexed annuity, your principal investment amount will be protected. This means that both you and your heirs will receive payments at least to the extent that you invested.

Savings in tax money: When you buy annuities with your 401k or IRA money, you save taxes because you can roll over these funds into an annuity without tax penalty. You are liable to pay tax only on the income you earn from the annuity.

An annuity allows you to live the life you want when you retire. So what problems could you possibly face?

Mixed opinion: While fixed annuities are considered suitable for retirement planning for their assured income, annuities are nevertheless viewed as expensive by some people. It is a good idea to understand annuities before you invest.

Lower returns: Annuities may guarantee income, but you lose out on the chance to invest in stocks that could probably give you bigger returns.

Inflexible: When you buy an annuity, you lock up your money.

My financial advisor tells me that it might be a good idea to set aside some emergency money where I can access it, just in case I have to take care of a major unplanned expense. There is also the option of selling annuities, but this could mean that you would get less than what you paid for the annuity.

It is obvious that not all annuities are the same.

From the variety of options available, some are perfect for a retiree and some are not.

Now that you know what are annuities and their benefits, you have to make the decision of where to buy your annuity and what clauses you want to include.

There's no need to get confused. A reputable and trustworthy investment advisor can help you decide.


Return from What Are The Annuities to Annuities


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