Are Annuities Good or Bad?

There is considerable discussion about whether you should consider annuities good or bad. The short answer is that it depends. You’ll need to go a little further to really answer the answer to the question: are annuities good or bad?

What the Experts Say:

If you do any reading about annuities online, you’re likely to find many articles that criticize annuities. The criticism tends to focus on high fees and low returns. Some financial websites like The Motley Fool come right out and scorn annuities as investments, but even they must admit that, in some circumstances, certain kinds of annuities have a place in an investor’s retirement portfolio. The reason for this is that a lifetime income annuity will help you to ensure that your retirement savings will not run out during your lifetime.

The critics at Motley Fool categorize the different varieties of annuity plans as "sometimes good," "bad," and "ugly." In their opinion, equity indexed annuities are the worst, variable annuities are bad, and lifetime income annuities are "sometimes good." The opinions of financial professionals about these plans vary greatly, however. They recognize that each investor’s situation is different; what is a "bad" plan for one individual may be the perfect solution for another. That said, let’s focus on lifetime income annuities.

Lifetime Income Annuities:

Annuities don’t come anymore basic than lifetime income annuities. With the lifetime annuity contract, you pay a lump sum to an insurer in exchange for receiving a specified amount of income on a regular basis until you die. These plans do not offer the potentially high returns of investments like stocks and bonds, but a good lifetime income annuity plan provides a cost-effective way for you to not outlive your money. These plans are appropriate for individuals who are close to retirement and who don’t have as much in their retirement savings accounts as they would like. The plans are also suitable if you don’t want to deal with a financial advisor when managing your investments in retirement.

Do Your Financial Homework:

Annuities are frequently sold as the best retirement products on the market. Conversely, they are criticized as being the worst possible choice for investors. The truth is somewhere in between and completely depends on what you want. If you are willing to assume high risk to get potentially high returns, you’ll probably want stock and bond investments. However, if you are a conservative investor and don’t want to outlive your retirement savings, take a look an annuities. They may just the thing for your particular needs. And always consult a trusted financial adviser before buying any investment plan.

For more information from Steven on how to invest in annuities, their pros & cons, and common investment mistakes, visit his Annuities Investment Guide.