Annuities Pros And Cons

Annuities Pros and Cons just like every other investment or savings program need to be researched. Once you discuss your situation, needs, and expectations, an annuity advisor will be able to show you what annuities will work for YOUR situation.

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An annuity is an agreement between an insurance company and a person where the insurance company agrees to pay the person a fixed amount periodically or a lump sum for periodic investments made over a length of time. An annuity is the best financial product for your retirement plans.

But every coin has a flip side and so does the coin of annuities.There are various annuities pros and cons which need to be taken into consideration in order to make an informed decision.

Annuities Pros and Cons:

Pros

• Life- long income - An annuity gives you the security of a lifetime income at periodic intervals. You can also take a lump sum after a certain length of time. Pensions also offer you a life- long income but the income guaranteed by them is meagre as compared to the annuities.

• Protection against inflation - Another advantage of annuities is to safeguard you against inflation. You can customise your annuity according to your needs to ensure that the monthly payments you receive are in accordance with the rate of inflation, thus ensuring a comfortable standard of living.

• Tax Deferrals - Another aspect of annuities is the power of annuities to grow your investment minus the taxes. Deferred annuities allow you to grow your income without paying any taxes until you start withdrawing from your annuity.

• Principal Guarantee - A big advantage of annuities is that they guarantee you the principal amount irrespective of the market conditions. This shields you from the volatility of the stock market and ensures that you have a sizeable amount of income even when the stock market crashes. This guarantee can help you plan your finances better.

Cons

• Low Returns - The first and the biggest drawback of annuities when we talk about annuities’ pros and cons is the low returns on annuities as compared to other financial products. As compared to stock market, the returns on annuities are significantly lower although safer, which at times can be negative, especially when the market is going great guns.

• Inflexible - Another disadvantage of annuities is that they are inflexible. When you invest a certain amount in an annuity, you lose access to that amount for a considerable length of time. Thus, experts always suggest keeping some portion of assets outside the annuities for your large one time needs. Weigh the annuities’ pros and cons carefully in order to gauge whether this financial product suits your needs or not. After all, it your hard earned cash and you must be judicious while investing it.

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