Annuities Pros and Cons

Annuity is a word that you hear a lot of in the financial spectrum. An annuity can be a very important tool when planning for retirement. With annuities you are basically saving up for your retirement years by putting money into a company at a specific time and then you get monthly returns on that money once you retire. After you have paid in the specified amount of money that you want either through monthly installments over time or in a lump sum then the company will begin making payments to you every month when you retire until that money is gone. Understanding annuities and how they work is crucial if you are planning to use them for retirement. It may be necessary to weigh annuities pros and cons to help you to determine if this is the right path for you.

First of all you need to understand that there are various different types of annuities. Each different type of annuity has its own benefits. Fixed annuities will ensure that you receive a specific interest rate for a specified amount of time. Variable annuities provide more flexibility and growth room but also include a much higher risk. Other types of annuities include immediate, indexed, single premium, flexible premium, deferred and many others. Before you can determine if annuities are right for you, you will need to spend some time researching and learning more about the various types of annuities that are available.

Again, there are pros and cons to annuities and understanding these advantages and disadvantages will help you to choose the right product for your retirement needs. An annuity is an excellent way to plan for your financial future but keep in mind that any financial tool comes with risks. Annuities do have many benefits but you should look at both the benefits and the risks involved when making up your mind.

The benefits of annuities far outweigh the risks for many consumers. Annuities can ensure that you receive a specified amount of money each and every month for the rest of your life. It is a more dependable option than many others and particularly good for those who prefer not to take higher risks, depending on the type of annuity that you purchase. They do have the ability to completely replace pensions by employers for retirement needs. They provide a very steady income for those in retirement and allow investments to grow free from income taxes. There are absolutely no restrictions or requirements for investing. Anyone can invest in an annuity and you can invest as little or as much as you can afford. In addition the sum value of annuities is guaranteed to be at or above the value of the money that you initially invest and annuities are backed by state guaranteed funds. This means that even if the company that you invest is goes under you will still have your annuity investment.

There are also a few disadvantages to purchasing annuities. They do tend to be less flexible than many other financial tools that are used for retirement planning. While they are meant to provide financial security over a period of time, they are of absolutely no use whatsoever when you need fast cash. Many feel that a savings account is a much better option because you can actually get your hands on your money when the need to pay for sudden unexpected expenses arises. They also do require a rather larger initial investment or many small investments over a specific period of time. If you withdraw your annuity funds early you are subject to a ten percent tax penalty. It may also be difficult to determine which annuity is best and which ones you should avoid and in order for an annuity to actually do its job you have to invest a substantial amount and leave it invested for a long period of time.

It is important that you go over annuities pros and cons very carefully when considering taking this financial step. As with any investment, there are going to be certain risks. Talk with a financial advisor to see which is the best step for you to take for your specific retirement planning.

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