Unless you are independently wealthy, it can be difficult to make sure that you have enough money to save for retirement. This is why there are so many different options, including annuities, that can help you do this.
While they can be quite confusing, annuities are quite useful in the right situation. In this article, we’ll take a closer look at the pros and cons of annuities so that you can determine if this financial product will fit your needs or not.
What is an Annuity?
An annuity is a financial tool used for retirement that is a contract between you and the insurance company. There are no banks or investment companies involved. There are two ways to purchase annuities: make a lump-sum payment or make payments on a pre-determined schedule.
Then, when you reach retirement age, you can annuitize the plan, which will flip it to the amortization period, where it starts paying out. You will be able to receive these payments for the rest of your life, and sometimes into the life of your chosen beneficiary.
Pros & Cons of Annuity
Now, let’s explore the pros and cons of this financial tool.
Pros of Annuities
Many people find themselves worried about their money when they retire. You no longer have a steady income and social security checks are not always enough. However, if you have thought ahead and put away money into an annuity, you have guaranteed payments for the rest of your life and, depending on the plan, perhaps it will continue to pay out to your beneficiaries after you pass. Seems pretty good, doesn’t it? Well, don’t get too excited, there are also some disadvantages.
Cons of Annuities
Once you put your money into an annuity, you’ll have a difficult time getting it back if you have an emergency. Once the terms are set, you don’t have much say in what happens to the money. You may not be able to access it at all or you may pay exorbitant fees to get it out early.
Of course, just like other financial tools, annuities do have a place in the retirement plans of many people. However, due to the fact that they can be confusing, you’ll want to contact a professional such as Spearing Capital & Consulting, Inc. to help you out.