Annuities: Pros vs. Cons

An annuity is an insurance product used to plan for retirement. The beauty of an annuity is that they pay out a steady stream of income when you retire, which can be used to supplement your other retirement accounts, or on its own. Annuities have pros and cons:

Pros

An annuity can provide you with the income you need to enjoy life during your golden years, with the income arriving in a steady stream to use as you need or wish.
Some annuities allow you to take out lumps sums, whether once or at various times.
The money you invest in an annuity grows tax-free. It is only taxed when you receive funds.
These plans can be customized to suit the individual, both in budget and needs. Some annuities offer long-term care expense coverage.
An annuity guarantees a stream of income for life.
“Indexed” annuities allow you to receive the income you need no matter the ups and downs of the stock market – you can count on the funds every month.

Cons

Annuities come with fees, and you must balance paying fees against the benefit of an income stream you can count on.
There are many types of annuities, and it can be challenging to know which one is best for you.
Consumers can be confused by all the options.
An indexed annuity has performance caps, so when the stock market is on a steep uptrend, you won’t gain as much as you would with some other investments.
The income you receive is taxed. Don’t forget it was a tax-deferred investment. It is taxed as “ordinary income,” as are 401k distributions.
After you pass away, your beneficiaries can receive a lump sum or a steady stream of payments from any remaining funds in your account.

Types of Annuities

While there are several types of annuities. Annuities come in many sizes, shapes, and forms, and in three main types:

Variable Annuity: These are annuities based on the performance of the subaccounts (similar to a mutual fund).
Fixed Annuity: These annuities guarantee the funds will increase at a set rate. The type of annuity can vary, with some having a new rate yearly or at various points in time.
Indexed Annuity: These annuities pay an interest rate based on the performance of a named market index, such as the S&P 500 or the Nasdaq. These annuities set limits on gains and losses. They are less risky and have a minimum guaranteed return.

Is an Annuity Right for Me?

When planning for retirement, you want to put a plan that works for your situation and the people you love. The best retirement plans are customized, and an annuity may be a good choice. Contact one of our local agents to learn more about how an annuity can help you save for retirement and have an income you can count on year after year. It is worth finding out more about investing in an annuity from one of our local agents. They can dispel any confusion and explain how these investments can improve your retirement years.