Annuity: The Pros and Cons

•••••••What is an Annuity

An annuity is a financial product that aids with retirement planning. Annuities work in many ways and can help almost every retiree, especially those who want to ensure a steady income after retirement. But there are many different kinds of annuities, so it’s important to do research before deciding if this is the right investment for you. This article will discuss the pros and cons of an annuity portfolio.

The Pros of Annuities

Annuities are an insurance-based retirement strategy that offers a lifetime fixed-income guarantee. Consumers can breathe a sigh of comfort knowing that the guaranteed amount of income they would get during retirement will never run out.

• You may determine how much money can save to obtain a guaranteed income that would enable you to prepare for your financial future.
• Annuities can provide a higher death benefit without underwriting, avoiding probate. The beneficiary will either get the basic or increased death benefit.
• Some policyholders may benefit from tax deferral and triple compounding, which can help their retirement assets grow more quickly.
• Various annuities can help pay for long-term care costs, such as nursing home care, assisted living, home health care, and adult day care.
• Higher fixed interest rates than CDs are offered by fixed deferred annuities and multi-year guaranteed annuities (MYGA), and taxes are not paid yearly.
• The Cost-of-Living Adjustments (COLAs) included in an annuity or a guaranteed lifetime income rider can often be used to mitigate the effects of inflation.
• Peace of mind comes with most deferred annuities (except variable annuities). Customers’ principles are guaranteed to be safeguarded at a minimum level in scenarios like a stock market crash so they won’t lose money during market downturns.
• Minimal or no costs may be incurred.
• Clients can “lock in” their gains with most deferred products, protecting them from the market’s ups and downs that affect financial planning.
• One anticipated benefit of a long-term investment is that you have time to weather market ups and downs. An annuity is a good example because the payments are dispersed over a long period. Annuities also offer a guaranteed stream of income, which is another benefit. Investing in an annuity that pays out over a lengthy period can be a wise strategy to save for the future and grow wealth.

The Cons of Annuities

• Retirement annuities are often long-term investments between you and the insurance provider. The shortest contract that can be made right now is for two years. Therefore, investors with short-term objectives should not invest if they need cash immediately.
• If a policy owner (annuitant) decides to start getting payments from their annuity when they retire, they can’t stop getting them. This presents a substantial drawback. The good news is that you can substitute a lifelong income rider.
• There is typically limited liquidity, meaning you might only be able to access 10% of the contract value each year until the contract expires while your retirement account grows.
• Some people would say you could make more money in the market if you waited longer. This is very true, depending on where you are in your career.
• Investment strategy risks include losing money in variable or registered-index-linked annuity contracts due to stock market volatility.
• Annuities are not backed by the FDIC or any other federal agency. Instead, they are backed by the ability of the insurance company that issued them to pay out claims. As a saving grace, each state has a State Guaranty Association that will step in and support an insurance firm if it ever goes bankrupt.
• Different annuities have different fee structures. However, the annual costs for those who do may be as high as 3%. This range of fees is higher than some other types of investments. Annuity fees could be a problem for investors and financial advisors. Other fees that might come up with an annuity are

1. Surrender charges. The annuity seller takes this fee out of the annuity’s cash value when you sell or take money out of a variable annuity during the surrender period. On average, this time frame lasts between six and eight years.
2. Service charges. Annuity sellers may impose fees to keep your account up to date. These fees may be used to offset expenses for bookkeeping and accounting. Some annuities may have sales commissions of 7% or more on top of these fees and additional charges.
3. Mortality and financial risk fees. Variable annuities incur this fee, which can be as high as 1.25%. The seller adds this charge, usually once a month, to make up for lost income if the person who owns the annuity dies before the seller thought they would.

Future step

We have now discussed the many benefits and drawbacks of annuities. Find an insurance provider with a solid reputation and financial standing to issue policies. We can assist you in achieving your long-term objectives depending on the submitted information. In addition, we will make product suggestions tailored to your unique requirements.

Contact Information:
Email: [email protected]
Phone: 9143022300

Bio:
My name is Kevin Wirth and I have worked in the financial services industry for many years and I specialize in life insurance and retirement planning for individuals and small business owners, with a specialty in working with Federal Employees. I am also AHIP certified to work with individuals on their Medicare planning. You can contact me by e-mail or phone. I look forward to the opportunity of working with you on these most relevant areas of financial planning.

[email protected]
914-302-2300

Disclosure:
These articles are intended for educational purposes only. Please contact your advisors for legal, accounting or investment advice.