Posted by BRIAN PRZYSTUP & ASSOCIATES LLC

Should You Invest In Annuities?

Should You Invest In Annuities?

As long as you are buying annuities for the right reasons, then that is a good investment. 

You can buy annuities for income, safety or for long-term growth. For example, an immediate annuity is bought for income purposes, a variable annuity might be bought for a long term, tax-deferred growth and a fixed annuity might make an attractive alternative to a CD. In each of these cases, some portion of the outcome is ensured by the insurance company that issues the annuity. In many cases, the amount of income you can take from the annuity in the future is what they ensure. 

Have a plan to make sure and to determine that that annuity is a good investment for you. Your investment goals and how to make choices that help you accomplish those goals should be stated in your plan. An annuity might be a good choice if you want to ensure part of the outcome. 

When can you say an annuity is a good investment?

You buy an annuity to reduce risk since an annuity is an insurance product. Some annuities are true insurance with no investment component at all; other annuities like variable annuities, have a selection of stock and bond portfolio available as investment choices inside the insurance contract. 

An annuity could be a good investment if you are buying it for the reason that it provides a hedge of longevity risk (the risk living far longer than you thought you would) which is one thing the annuity does well. 

If you know your retirement goals, you can understand the fees and restrictions of the annuity product you are considering, and you can see how the annuity helps you accomplish your goals then it might be the perfect investment choice for you. You should understand how the annuity complements other investments you have, what other investment options available, and how the annuity income is taxed when income can start. 

When can you say an annuity is not a good investment?

Be cautious if someone is trying to sell you an annuity without looking at your entire financial situation. Many people selling annuities may not have a thorough understanding of the products they are selling but their intentions are good. They can't see how the product is going to fit into your retirement picture if they haven't done any planning for you and they often do not have a good grasp of the tax implications. 

As what most sales person say: What do the fees matter if it does what you want? Well, it is absolutely not true. Your return will be lowered with high fees. In anything but the best markets, your annuity investment will earn low returns with high fees in some variable annuity products.  

If you have crafted a plan and how the annuity fits in, then that is the time you should buy an annuity. There should be no pressure or sense of urgency to buy until you are done making your assignment since annuities are not going away. There are some sales representatives will tell you that in a short period of time only, that annuity product will be available. It is often true since from time to time some insurance company discontinues products. But don't be so worried since soon enough a similar product with a similar feature will likely pop up in place of the old one. 

Are all annuities the same?

Every different kind of annuities has its own pros and cons. You will know what questions to ask about the specific annuity you might be considering once you understand the different categories of annuities. 

Before you buy, compare no-load annuities to broker-sold annuities. Someone who carries an insurance license and possible security license too is where you can buy broker-sold annuities. However, you can buy a no-load annuities directly. You must do your research and homework even if they have lower fees. That is the exchange of paying lower fees. To help you select an appropriate no-load annuity that fits in your plan, some fee-only advisors will be a big help. 

Before making a final decision, do your homework and read up on alternatives to annuities. In regards to annuity fees, you should be comfortable in asking about it. Before you buy, any reputable adviser or company should explain all costs to you. Don't buy from someone who is not willing to take the time to explain how they are compensated for the sale of that product or to explain the fees of their product. 

Always remember that if you understand what the annuity will do for you, why you are buying it and if it is part of a well-structured retirement income plan-- then an annuity can be a good investment. 

BRIAN PRZYSTUP & ASSOCIATES LLC
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