Recent Doubts towards Annuities and Retirement

Post By: Dana Sunderlin

For a long time, retirement investors have considered annuities to be the ideal route towards protection and security. An annuity is essentially a contract between you and a particular insurance company. It involves making a lump-sum payment, or series of payments, which the insurer agrees to pay to you at some point in the future. Annuities can be either fixed or variable and generally offer a tax-deferred growth of earnings.

Despite the fact that annuities are thought to offer safety and guarantees, they are ultimately tied to the financial strength of the insurer. If the insurance company failed, you would face a large loss towards your investment. For this reason, in light of the recent financial crisis that has ensued, many people are concerned with whether they should continue to put a portion of their retirement money and assets into an annuity. Many critics believe that annuities do indeed continue to play a crucial and valuable role in retirement, based on their unique features that give them the ability to turn a person’s savings into a lifetime of payments. However, it is more important than ever to shop around when purchasing an annuity and ensuring its security.

On the other hand, many potential problems have been found with the use of annuities. The first is that early withdraws can result in a double penalty. When money is taken from a premium, you are charged for penalties to both the government and the insurance company. Other problems involve the way that funds are taxed and also whether or not it is actually a cheaper way to save.

Although the importance of annuities in retirement planning is debated, it is clear that if you do plan on investing in an annuity for the future, it is important to look into and truly know what you are buying.


Sources:
http://money.cnn.com/2009/01/22/pf/expert/annuity_safety.moneymag/index.htm?postversion=2009012606
http://stockinvesting101.net/the-4-potential-problems-with-variable-annuities/
http://www.sec.gov/answers/annuity.htm