Not all of us have the same tolerance for risk. While some are able to easily stomach the ups and downs of the financial markets, others find themselves becoming queasy. For the latter group, annuities offer a more stable investing experience, but that stability comes with certain drawbacks. Annuities are generally more complex, expensive, restrictive, and offer less opportunity for gain. Because of this, you need to fully understand what an annuity offers and what you are giving up before deciding to invest.
WHAT ANNUITIES OFFER AND WHAT THEY DON’T
The short answer: Annuities offer peace of mind through guaranteed income or protected principle, in exchange for potential gains and liquidity.
Many retirees and soon-to-be retirees are concerned over the safety of their investments in mutual funds, ETFs, and stocks. The gyrations of the stock market are often hard to take for this group. With the help of a well-chosen annuity, a layer of diversification is added to your retirement portfolio. Annuities are structured to be somewhat insulated from the stock market, so your investments and/or income will be at least partially sheltered from the volatility inherent to these assets.
However, we must keep in mind that an annuity is not the simple direct ownership of assets, but a contract with the annuity issuer. These contracts are often quite complex and can be hard to comprehend in full. The majority of these contracts include steep penalties in the first 7-10 years if you decide to withdraw or move your money to another investment. The nature of investment options within an annuity also drastically limits potential gains.
WHAT WE CAN DO FOR YOU
We often find that annuities are oversold as general investment vehicles. We believe that they fit the needs of only a small niche of clients. However, if used strategically, Annuities can be a powerful retirement income planning tool. Here are some of the ways that our Annuity experts can help you:
- Use annuities as a retirement planning option: Our team of specialists will work with you to review your entire existing portfolio to determine whether Annuities are right for you. In some cases, an overexposure to other fixed-income products, like Bonds and Dividend-paying stocks, could still leave your retirement income exposed. We’ll help you decide if Annuities are the right retirement planning option for you
- Make cost-effective Annuity choices: Not all Annuities are created alike. While they may generally be a great choice for generating retirement income, the cost associated with producing such income can be high. Our Annuity specialists are familiar with the entire Annuity landscape, and can help identify the most cost-advantaged Annuity investments for you
- Receive tax-advantaged income: We help clients manage their tax liability through prudent product selection. Some annuities enable investors to defer their current income. You will still pay ordinary income tax when the money is withdrawn, but will generally be in a lower tax bracket when this occurs.
*There is a surrender charge imposed generally during the first 7 to 10 years that you own the contract. Withdrawals prior to age 59 ½ may result in a 10% IRS tax penalty, in addition to any ordinary income tax. The guarantee of the annuity is backed by the financial strength of the underlying insurance company. Investment sub-account values will fluctuate with changes in market conditions.
*Investors should consider the investment objectives, risks and charges and expenses of the variable annuity carefully before investing. An investment in a variable annuity involves investment risk, including possible loss of principal. Variable annuities are designed for long-term investing. The contract, when redeemed, may be worth more or less than the total amount invested. Variable annuities are subject to insurance-related charges including mortality and expense charges, administrative fees, and the expenses associated with the underlying sub-accounts. The prospectus contains this and other information about the variable annuity contact the issuing firm or your registered representative to obtain a prospectus, which should be read carefully before investing or sending money.