Does the stock market make you feel like you're standing on the edge of a cliff?
If you are a nervous investor and just don't like the ups and downs of the stock market, then you may want to consider an annuity contract. Annuities are contracts that guarantee an income...whether that is immediate or in the future. Annuities allow you to put the money in as a lump sum or in installments. An annuity can help you save for retirement and then once you reach retirement it can help you have a cash flow each month. The growth in an annuity is tax free on both what you put into it and the growth that you earn on your money, but will be subject to taxation when the money is received. The money that you put into an annuity is with an insurance company instead of in the stock market (unless you choose a variable annuity). Not only do annuities provide income in retirement. They can provide for your family if something were to happen to you. With an annuity, you have a guaranteed investment return, so your money is not subject to the fluctuations of the stock market. For investors that do not like the ups and downs of the market, then an annuity is going to help you sleep better at night.
An annuity can be a good investment choice as part of a well balanced retirement plan. Some of the reasons to buy an annuity are for safety (who doesn't want that), for growth, and for guaranteed income (again who doesn't want that!). Like I said above, when you are purchasing an annuity you are shielding yourself from risk. That is the primary reason that most people want to put their money into an annuity product. If you are risk adverse, then the stock market can make you feel ill if it takes a steep drop. With an annuity, you don't feel that fear at losing your money.
Some investors have asked, "Can I lose money in an annuity?" A fixed annuity prevents loss. The contract will typically guarantee the value of the principal that you put in will not go down and that you will earn a set percentage of interest. The interest amount will be set in the contract. This is not the case in the stock market. When you invest your money in the stock market, there is no guarantee on the principal that you invest. You can lose money. That is a risk that some are comfortable to take and others are not. You ultimately have to decide what your comfort level is. I think retirement planning is about finding balance. An annuity can work for you as long as you understand the product. including the fees and have a good solid idea of what you want your retirement plan to look like. Make sure that the person trying to sell you an annuity is looking at your complete financial picture to truly understand what that looks like.
An annuity does not make sense for everyone and each application will be fully scrutinized for suitability. There are many factors that are looked at including age, income, assets, liquidity needs, financial knowledge, where the funds are coming from to fund the annuity, etc. If the insurance company thinks that it doesn't make sense for you, the application will be declined. Liquidity needs are reviewed because an annuity is different than the stock market. In the stock market, you can sell stocks and bonds or shares in a mutual fund if you get in a situation and need the money. An annuity is a contract and if you need money and pull it out without it being a normal draw then you could face a heavy fee to do so.
When an annuity makes sense:
An annuity can be a good investment choice as part of a well balanced retirement plan. Some of the reasons to buy an annuity are for safety (who doesn't want that), for growth, and for guaranteed income (again who doesn't want that!). Like I said above, when you are purchasing an annuity you are shielding yourself from risk. That is the primary reason that most people want to put their money into an annuity product. If you are risk adverse, then the stock market can make you feel ill if it takes a steep drop. With an annuity, you don't feel that fear at losing your money.
Some investors have asked, "Can I lose money in an annuity?" A fixed annuity prevents loss. The contract will typically guarantee the value of the principal that you put in will not go down and that you will earn a set percentage of interest. The interest amount will be set in the contract. This is not the case in the stock market. When you invest your money in the stock market, there is no guarantee on the principal that you invest. You can lose money. That is a risk that some are comfortable to take and others are not. You ultimately have to decide what your comfort level is. I think retirement planning is about finding balance. An annuity can work for you as long as you understand the product. including the fees and have a good solid idea of what you want your retirement plan to look like. Make sure that the person trying to sell you an annuity is looking at your complete financial picture to truly understand what that looks like.
An annuity does not make sense for everyone and each application will be fully scrutinized for suitability. There are many factors that are looked at including age, income, assets, liquidity needs, financial knowledge, where the funds are coming from to fund the annuity, etc. If the insurance company thinks that it doesn't make sense for you, the application will be declined. Liquidity needs are reviewed because an annuity is different than the stock market. In the stock market, you can sell stocks and bonds or shares in a mutual fund if you get in a situation and need the money. An annuity is a contract and if you need money and pull it out without it being a normal draw then you could face a heavy fee to do so.
When an annuity makes sense:
- If you are maxing out your 401k contributions, IRA contributions and are looking for another option, because of high income tax bracket, then an annuity makes sense for you due to it's tax free growth.
- An fixed annuity can also be a better option than putting the money in a CD (certificate of deposit). The interest paid on your CD will be lower than what can be earned on an annuity.
- If you are invested in the stock market and want to diversify your portfolio. You can use an annuity as an additional investment product. If you were planning on putting an additional sum into the market, you could choose to put it into an annuity instead. This will diversify your portfolio even further.
- As you grow older and have had a moderate to aggressive portfolio, but you need to make some changes to make it more conservative.
If you would like to find out more about annuities, click on the button below. If you have a CD that you would like to earn more on, are currently maxing out your 401ks or IRAs, or have recently lost employment or retired and you don't know what to do with your 401k, an annuity could be the answer.
