Annuities Pros and Cons
Every financial product has a unique purpose. In the case of annuities (we use the term generically here), they have helped Americans with retirement income and security since 1790.
Questions regarding the merits or negatives about annuities have been discussed extensively in the financial media and journals. We as financial advisors are often asked about whether we think annuities are “good or bad.”
First, the question about whether annuities are “good or bad” is the wrong question. There are better questions that will bring out the benefits or negatives for you specifically.
Questions that can be asked are:
- What is the primary function and use of the annuity in question?
- What to expect if you convert to an income payout?
- How is interest credited? What are the choices? What could you expect?
- How do you exit the annuity? What would penalties be if you redeemed early?
This is a short list that should provide the general idea.
Annuities have two primary uses:
- Protection of principal with a guaranteed minimum rate of interest.
- A guaranteed stream of income for the life of the annuitant and, if applicable, a surviving spouse.
Annuities are insurance contracts, not investments. Guarantees are the fundamental benefit of annuities. No person has ever lost their principal in a fixed annuity contract in the U.S. since the first annuity was issued in 1790.
Our firm has a long history of investing and managing retirement funds and we also have a long history with insurance products and planning. Since we work for our clients, we keep an open mind to the strategies that will best serve their needs.
(Note that commissions are paid by the insurance company if we recommend and transact insurance on your behalf.)
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