If you are looking at a few different financial options, you may be deciding between stocks, bonds or annuities pros and cons. While there are many benefits to each, and depending on your current financial situation you may be more or less inclined in one direction or another, here we will evaluate both fixed annuities pros and cons, variable annuities pros and cons, immediate annuities pros cons and retirement annuities pros and cons.
The first thing you do when evaluating annuities pros and cons is to determine what your needs are and how far away you are from retirement. The advantages of an annuity are easy to understand:
Tax Deferral – Annuity earnings are tax deferred which can make them a better option than CD’s, money market funds or other investments.
Security of Capital – The money you invest in annuity investments is secure and safe because the insurance companies are required by law to back them up with hard cash. Additionally the state will usually insure an annuity for up to $100,000 on average.
Liquidity – The money is easily accessed with many agreements having yearly withdrawal clauses allowing you to take out 10 to 15% of the money valued each year without penalty.
Rate of Return – While a typical savings account yields .2% interest every year and an online savings account may offer 2%, annuities are currently averaging 4%. So of the investments considered safe, annuities are at the top.
Income Stream – Annuities that provide an income on a monthly or regular basis. For retirement annuities pros and cons this is definitely a pro as it can provide you with income each month.
Annuities can have just as many cons as pros:
Short Term Money – If you are looking to get back the money you invested in full within a short period say less than 5 years this will not happen.
Surrender Schedule – Most annuity schedules prevent you from taking out large quantities before the annuity matures and this is to off-set the lack of up-front sales fees.
Sales Commissions – Just like anything else the insurance agent who sells the annuity to you will be entitled to a commission which comes out of the portion you are buying the annuity with, less money into the pot for you.
Liquidity – This can be a pro and a con for annuities. While you are allowed to take out money you are only allowed a percentage, should you need more you would incur large penalties
Before making any decision on annuities pro and cons and different annuity settlement options or if later you can find someone to “buy my annuity,” you need to consult a financial planning agency to really educate you on what will be best for your situation.
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