Annuities- Good or Bad?

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When discussing building retirement financial plans, inevitably the word “Annuities” comes up in the conversation. Folks react with pleasure or we get an “oh no, not annuities “.

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Many times we try to explain that annuities are just a tool that can play a part in your retirement. The first question I always ask is which type of annuity are you talking about? This often gets me a blank stare as most folks don’t realize there are different types of annuities and that they all have different purposes.

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I use the example that most people don’t realize that their Social Security check they get every month is a type of annuity. You paid into the system and the system is going to give you a paycheck for life. With the different types of Annuities, you just need to determine which format will fit your needs.

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Fixed Annuity is when you deposit money with an insurance company for a period of time of 1-20 years. The principle is fully insured and your interest rate is guaranteed.At the end of the time of the contract, your principal is returned. This one works like a CD at a bank, but often these Annuities outperform Bank rates of interest.

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Immediate Annuity is when you give money to an insurance company and the funds are no longer yours. In return, they promise a guaranteed income for you, or you and your spouse, for a period of time, which can be both of your lifetimes.

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Variable Annuity is usually the bad boy of “Annuities.”Your principal is at risk and there are fees in the 2-4% range that you pay even if the Variable Annuity losses principal. This Annuity is directly invested in sub accounts similar to mutual funds. The value of your account varies up and down with the market. This is where there are risks of losing your principal.

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If you have an errant adult child, these types of products can be controlled from the grave and allow you to plan how your child can be taken care of financially even after you’re gone. This is especially valuable with a disabled spouse or child.

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So Annuities? Good or Bad? No such thing as they each have their uses. You need to view them as tools in your retirement tool box of products to take care of certain areas of your retirement financial well-being. These are just some of the ways you can achieve a well-balanced retirement plan.

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Need help in finding out if these are right for you and will solve an income issue as part of your financial plan? Call Us! We’re here to help!