Why You Might Need An Annuity To Secure Your Financial Future Today

An annuity is an investment that gives the investor a sum of money yearly. The idea is that you pay in for a time – known as the accumulation phase – then in the annuitization phase, payments begin. Annuities can be used for retirement, giving the investor a steady and reliable form of income - especially if the investor is worried about outliving other forms of income.

What types of annuity are there?

Social Security and pensions are two types of annuity that are ‘lifetime guaranteed’. It is also possible to arrange an annuity so that it pays out over a fixed amount of time if you’d rather. Fixed annuities provide regular fixed payments, and variable annuities offer either bigger or smaller payouts depending on the annuity’s performance. It is possible to get a combination of both.

Charitable annuities allow you to make a tax-deductible charity donation, and receive some of the donation back for yourself.

Are there any drawbacks?

Once you have invested into an annuity, you can’t get the money back out again – there will be a ‘surrender period’ of probably 2 years at the least, and a ‘surrender fee’ which can be anywhere from 10% (though it does at least go down as the surrender period continues). Also bear in mind that commissions on annuities are high – so make sure you don’t get talked into something you don’t want. Having said this, annuities can be a good idea particularly if you don’t have a pension or any other security lined up for your future. If you have money stored up in permanent life insurance it can also be possible to convert that cash into an annuity without paying tax (called a 1035 exchange).