This page will discuss annuities pros and cons:
- Advantages of an Annuity
- Disadvantages of an Annuity
- Are annuities worth it?
If you are looking to invest as an expat or high-net-worth individual, which is what I specialize in, you can email me (advice@adamfayed.com) or WhatsApp (+44-7393-450-837).
Seeking financial advice matters when it comes to investing, especially if for those who aren’t well-versed with the risks.
Annuities Pros and Cons
Advantages of an Annuity
Despite some criticisms, annuities have advantages for investors planning for retirement.
- Guaranteed Income. Annuities promise to pay a fixed income, no matter how long the annuity owner lives. However, it’s crucial to choose a reliable insurance company with high financial strength ratings.
- Customizable Features. Annuity contracts can be tailored to meet the buyer’s needs. Features like a death benefit provision or a guaranteed minimum income benefit rider can be added, ensuring heirs receive something or promising a certain payout regardless of mutual fund performance. Note that these features may come with additional costs.
- Money-Management Assistance. Variable annuities might offer professional money-management features, like portfolio rebalancing, for investors who prefer expert assistance.
Disadvantages of an Annuity
- High Commissions. The commissions for selling annuities are often higher than those for mutual funds. Advisors may steer clients toward annuities to earn larger commissions.
- High Fees. Annuities may not have upfront sales charges, but they often have annual maintenance and operational charges that can be higher than comparable mutual funds. Investors should carefully review fees before investing.
- Surrender Charges. If an annuity owner needs to withdraw money before a specified period (usually six to eight years), they may face significant surrender fees from the insurer.
- Tax Penalties. If the annuity owner is under 59½, they might incur a 10% early withdrawal penalty. Annuities are already tax-sheltered, and placing them in IRAs can be redundant and expensive.
Are Annuities Worth it?
Besides understanding the annuities pros and cons, it’s critical to thoroughly assess if their features match your financial goals and to think about how they fit into your overall investing strategy.
You can also find out if an annuity fits into your entire financial plan by speaking with a financial advisor.
Pained by financial indecision? Want to invest with Adam?
Adam is an internationally recognised author on financial matters, with over 760.2 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.
