As with any investment product, there are pros and cons of annuities. There are factors to consider, like the annuity rate, the withdrawal restrictions, the corporate credit, and the surrender schedule. Understanding these annuities pros and cons before you buy will help you make an informed decision. Then, when you are ready to buy an annuity, you will have a firm understanding and be able to pick the right annuity for your unique situation.
Please explore the information below, and make sure you understand what you are looking at before making a purchase decision. And be sure to sign up as a member of Annuity Straight Talk- Membership is completely free, and allows you access to the special reports and inside information on Annuities.
Pros and Cons of Annuities In General: Pros
The benefits of an annuity are easy to understand. Here are some brief introductions of each of these benefits.
Tax Deferral: Like an IRA, annuity earnings are tax deferred. This makes them more appealing than CDs, money market funds, or other safe investments. Tax Deferred Annuities offer greater compounding of your investment earnings over regular taxable accounts like CD’s or securities investments.
Safety of Capital: Your money is safe in annuities. Insurance companies are required to keep cash reserves to ensure this. Most states also have a guarantee fund up to $100,000 per annuity for additional security.
Liquidity: Your money is accessible. Most contracts have an annual withdrawal clause that will allow you to take 10-15% of the account value each year without incurring any penalty.
Rate of Return: Annuities offer higher rates of return than other safe investments. Currently, annuities are yielding an average of 4% tax deferred in comparison to only 2% taxable with CDs. As our economic markets stabilize, annuity yields should increase accordingly. Annuity rates of return offer more stability in fluctuating markets.
Income stream: Fixed annuities that provide an income stream have been found to be one of the best retirement income vehicles according to a study done by New York Life and the Wharton Business School. After the first annuity contract year, most annuities can provide monthly income payments for your lifetime. Likewise, immediate annuities provide monthly income payments for your lifetime, but they start immediately.
Pros and Cons of Annuities: Cons
The wrong annuity product can have negative effects. It is important to know these cons so you do not purchase the wrong product for you.
Short Term Money: If there is a chance you need all of your money returned to you in the short-term, say one to two years, an annuity is not right for you. It is best to only invest funds you will not need for at least the next five years.
Surrender Schedule: Because annuity contracts have surrender charges for withdrawing money before the contract matures in lieu of up front sales charges, you will be obligated to the terms of the contract. Some surrender schedules can be as long as ten years.
Sales Commissions: As with any purchase, the sales agent will earn a sales commission. An unethical sales agent may not have your best interests at heart and will not show you the right product for your needs.
Liquidity: You may be referring back to the pros section and find liquidity featured there as well. While liquidity can be a pro, it can also be a negative in so much as you realistically knowing how much money you may need to access and when you will need it. Without knowing these answers, liquidity can easily turn into a negative.
These pros and cons should help you analyze your annuity needs. Use these guidelines to determine what factors are important to you and you will have an easier time selecting the right annuity for you.
Grab a free copy of The Annuity Report to better understand how annuities can play an integral role in your retirement. In Summary, Annuities have positive and negative components, like anything. Most people are presented with different types of annuities by sales people, but are left without a clear understanding of each type of annuity.
For more information on the specific kinds of annuities, explore the pages below, and make sure you understand what you are looking at before making a purchase decision. And be sure to sign up as a member of Annuity Straight Talk- Membership is completely free, and allows you access to the special reports and inside information on Annuities.
We hope these pages on the will help you explore further and find the best annuity for you, but as always, we stand ready to assist.