Annuities Advantages and Annuities Disadvantages
Annuities are a great investment vehicle for retirement for those who want to save extra above & beyond the limits of IRAs and 401ks/403bs, and they have some interesting features that can make them very advantageous.
Advantages Of Annuities
- There are 2 main types – deferred and immediate – depending on how soon you need to start receiving income
- No limits on contribution amounts – you can put away as much as you need to, which is especially helpful for those who need to play catch-up if they are over age 50 & have not saved enough for retirement
- Savings grow tax-deferred and your earnings are taxed at your current regular income tax rate when making withdrawals (after age 59 ½)
- Depending on how much risk you need to take, you can invest in fixed, variable, and/or equity-indexed annuities
- Depending on the types and features of your particular annuity, you can take a lump-sum payment or receive income over your lifetime or a specific period of time
Disadvantages Of Annuities
- Sometimes they (especially variable and equity-indexed versions) can carry high expenses in the form of annual fees, policy riders, commissions, and surrender charges, making them cost-intensive
- You can often give up control of when you can take your money back out of an annuity without incurring a surrender charge
- Withdrawals before age 59 ½ are not only subject to taxes, but also a 10% early-withdrawal penalty
- If you buy an annuity from an insurance company, you are at the mercy of the claims-paying ability of that company (the higher the credit rating, the better)
Find an experienced financial advisor who frequently deals with annuities, works for an RIA firm, earns his/her money from fees (NOT commissions), believes in having an abundance of investment choices for clients, and has the heart & demeanor of a teacher, NOT a salesman, and chances are you’ve found the right financial advisor to help you prepare and plan for retirement.
To learn more about Martin Federici, view his Paladin Registry profile.
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