Annuities

Annuities are basically contracts between you and an insurance company designed to provide an income that is guaranteed for the rest of your life. You make a payment (or payments) to an insurance company and, in return, they promise to grow that money and send you payments during retirement.

Annuities are mainly used for retirement purposes and help individuals address the risk of outliving their savings.

We are going to get this out of the way right now, we do not recommend annuities at all, apologies for the awkwardness. 

Variable annuities are by far the better option over fixed annuities, but still not advantageous relative to other investment options. 

• Immediate Annuities - Long-term, tax-deferred contracts that you purchase from an insurance company that provide immediate regular payments in exchange for a lump-sum investment.

• Deferred Annuities (Longevity Insurance) - Annuities that are similar to an income annuity with a delated start date beginning 13 or more months in the future.

• Fixed Annuities - Annuities that provides you with regular periodic payments, think of them like savings accounts with an insurance company similar to a certificate of deposit (CD) that you will find at a bank. 

• Variable Annuities - A tax-deferred retirement vehicle that allows you to choose from a selection of investments, and then pays you a level of income in retirement that is determined by the performance of the investments that you choose.

• Beneficiaries - One advantage of a variable annuity is that you can leave a beneficiary on the annuity so that the payments you were getting can go to a loved one when you die.

• Principal Security - Some variable annuities offer a guarantee on your principal investment. So the amount you contribute to an annuity will be the same amount that you withdraw when you cash out, even if the value of the investment drops below that principal amount.

• No Contribution Limits - Unlike a 401(k) or an IRA, annuities do not have yearly contribution limits, so you can put as much money into the annuity as you would like.

• Fixed Annuities - If you’re saving up for retirement, the rate of return that fixed annuities offer will not beat inflation over time. Some investors find security in being guaranteed a fixed amount and view that as an advantage of annuities, but when your fixed amount is not outpacing inflation the guarantee starts to be less and less comforting with each passing year.

• Fees -  Transferring the risk of outliving the money you have saved for retirement over to an insurance company does not come cheap, there are many fees and stipulations that come with this guarantee. Insurance fees, investment management fees, commissions, surrender charges, rider charges, it is safe to say that the insurance company will make more from your annuities than you will.