According to the Wall Street Journal, many experts now recommend that aging investors buy an annuity in addition to stock and bonds. While annuities weren’t such a hot commodity in the past, they are now more respected, thanks to the market downturn of recent years.
Here are five reasons why buying an annuity is a good idea:
They Offer Dependable Income.
Annuities might not provide the great return that bonds and stocks can, but they are a lot more stable. For people approaching retirement age, annuities can help provide some assurance of steady income, regardless of how the market is doing. Annuities with a fixed income rate will always gain value, regardless of changes in the market. Variable annuities will still keep the principal safe, but the gains are affected by market changes.
They Offer Guaranteed Income.
Annuities will guarantee that you continue receiving money until you die –This is important if your retirement funds are limited and you’re worried that you’ll run out of money at some point after retirement.
They Allow You to Defer Taxes.
You will have to pay taxes on income generated by annuities, but these taxes are not paid until you take the money out. As long as the money remains locked in the annuity –during what’s called “the grow period”– you won’t be charged any taxes. Since no money is taken out every year, you have more capital invested, which allows the annuity gains to grow faster.
There’s No Annual Contribution Limit.
If you’re putting money away into your 401(k)s and IRAs regularly, annuities are a good choice because there’s no limit to how much you can contribute every year. Investing in annuities allows you to put more money aside for retirement without any penalties.
They Are Simple to Handle.
Probably the most obvious reason people choose to buy an annuity is the fact that they offer little risk. They are also easy to set up and maintain. You don’t need a lawyer or a broker to set up an annuity fund; all you need is a check and to open an account. Annuities can be passed on directly to your beneficiaries without the need of probate. This can save your beneficiaries money, time and complications.
Annuities are not for everybody, so it’s important that you do your research before making the decision of investing on them. If you don’t quite understand the pros and cons of buying annuities, try consulting with an expert. A short talk might be all you need to figure out the right course of action.
Joseph A. Jaffe