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.
Here are some of the 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
There are also some possible disadvantages with annuities though:
- 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.
Other posts from Martin Federici, Jr.
In previous articles I’ve written, I’ve gone over the question to ask when hiring a true financial professional...
There’s been a lot of media coverage lately re: The Department of Labor’s (DOL’s) possible new rules for...
In honor of our nation’s birthday, I’d like to say Happy Fourth of July to all our readers! ...