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Finance

Annuities: The Pros and Cons

January 5, 2022 · 2 min read

Having enough money saved to live comfortably upon retirement is a concern amongst many. Annuities are investment options designed to increase retirement income. Here is some information that can help you determine whether purchasing annuities might help to meet your retirement needs.

Annuity Basics

An annuity is a type of pension that you buy not from investment companies or banks but insurance companies. Purchase annuities by making regular monthly payments or in one lump sum. When the time comes to retire, you cease paying into the annuity and begin to draw regular payments from it. These payments sometimes last for your lifetime and the lifetime of a beneficiary.

Types of Annuities

The types of annuities vary depending upon their risk levels. Fixed annuities are low risk, but the interest you earn is also low. With variable annuities you select the risk level you prefer; you can gain substantially or lose your investment depending upon your decisions. Indexed annuities are pegged to the S&P 500 or some other market index. Annuities also vary depending on when they payout. Immediate annuities begin to payout soon after purchase, while deferred annuities payout much later, at a time predetermined in your contract.

Benefits of Annuities

It is common to feel stressed about whether you will be able to meet your expenses after retirement. If you invest in the right annuities, you have an additional guaranteed source of income. Financial advisors are also able to line up the income from your annuities with certain ongoing fixed expenses so you have the assurance that your bills will be covered.

Drawbacks of Annuities

Once you set the distribution terms for annuities, it is difficult to change them, even if emergencies come up and you need additional funds. The fees for annuities are generally higher than those for retirement accounts from investment companies. The terms for annuities can be confusing, so you should consult with a financial professional before you finalize a purchase.

For more advice on annuities, contact Rexford Commercial Capital.

By Rexford Commercial Capital

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