What Are the Pros and Cons of Annuities?

Annuities: Pros and Cons

Annuities are one of the most common — and most commonly debated — forms of investments.  Particularly for older people who enter the age of retirement. Are annuities worth the cost and risk? Let’s take a closer look at annuities as well as the pros and cons for annuities as an investment and financial strategy.

There are several notable pros and cons that you should consider when you are deciding whether or not to buy an annuity.

Annuities can provide income for life.

For the most part, annuities will be a form of guaranteed income that you receive for life. Most people do not outlive their annuity agreements. This is in direct contrast to other types of investments, which may not come to fruition before your passing.

Deferred distribution can help save money.

If you chose a deferred distribution of your annuity, you can make sure that you don’t own taxes on it until it begins to be withdrawn. This gives you greater control over the taxes paid on your annuity when compared to other investments.

Fixed-rate options.

Unlike the variable risk associated with variable annuities, the fixed-rate annuity option is perfect when you want a guaranteed, predictable income stream for the future.

Surrender fees.

Most annuities have a surrender fee that is applicable for around 6-8 years and sometimes longer.  This means you won’t be able to withdraw from your contract without paying a penalty.

Tax rates.

Although you can have more control over when you start paying your taxes on annuities, after retirement your tax rate is usually lower.

Variable annuities are risky.

If you chose a variable annuity, you won’t have a fixed, guaranteed income. This can be risky depending on what sub-accounts you chose for your contract.

Final Thoughts

Annuities can be beneficial for people who are looking to retire in the future and want to make sure they have some type of supplemental income stream. Before buying an annuity, make sure you carefully weigh all the pros and cons.

Contact Us

Our Annuity Counselors are available to offer complimentary evaluation services for qualified investors. We’ll analyze the annuities you own or are considering, to explain exactly what these contracts truly provide. We also help qualified investors identify opportunities that may be more suitable for a portfolio than an annuity.

Contact us today to schedule an appointment.