Annuities are a good investment if you are buying them for the right reasons.
You can buy annuities for safety, long-term growth, or income. For example, a fixed multi-year guarantee annuity might make an attractive alternative to a CD; variable annuity might be bought for long-term growth, tax-deferred growth; and a fixed indexed annuity allows you to participate in the market up-swings while not participating in the market down-swings. Many annuities allow you to add an income rider which can provide a lifetime income without locking up your basis (principal)
The only real way to determine if an annuity is a good investment for you is to have a plan. Your plan should dictate what your investment goals are and show you how to make choices that help you accomplish those goals. Annuities can serve as an excellent hedge against market downfalls, while still allowing you to participate in the positive returns of indices such as the S&P 500
When an Annuity is a Good Investment?
First and foremost, an annuity is an insurance product, which means you buy it to reduce risk. Some annuities, like variable annuities, have a selection of stock and bond portfolios available as investment choices inside the insurance contract. Other annuities are true insurance with no investment component at all.
There is one thing an annuity does well, which is to provide a hedge against longevity risk (the risk of living far longer than you thought you would). If you are buying it for that reason, an annuity can be a good investment.
An annuity might be the perfect investment choice for you if you know your retirement goals, can see how the annuity helps you accomplish those goals, and understand all the fees and restrictions of the annuity product you are considering. You should understand how the annuity income is taxed when payout begins, what investment options are available, and how the annuity complements other investments you have.
The Bottom Line:
Bottom line: An annuity can be a good investment if it is part of a well-structured retirement income plan, and you understand what it does for you and why you are buying it.
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