Are Annuities Good Or Bad?
Annuities are commonly drawn up as contracts between an individual and an insurance company, in which, the former has to pay a premium either as a consolidated sum or as installments. If the individual buyer opts for regular periodic payments, then the insurance company begins paying back periodically after retirement. Thus, annuities can be a good source of steady income. However, it may not apply to all annuities. So the question remains, are annuities good or bad?
Annuities can be either fixed or variable. In the first kind, the payment amount is fixed or it is increased by a static percentage. Variable annuities are characterized by floating payment amounts, which vary according to the performance of the investments. If you are a conservative investor looking for low-risk, albeit reasonable income at a later time, then an annuity may be the thing for you - even the variable ones.
One of the biggest pros of a variable annuity is that you do not have to pay taxes on it. As an investment, that is very important, since you receive tax-deferred benefits for the entire period of your investment, increasing it substantially. In addition, with respect to a fixed annuity, a variable one can absorb the entire benefit of an investment performing well in the market. On the contrary, if the market is struggling, then your returns will obviously be lower, but you will certainly receive the minimum profit guaranteed, so either way you do not lose your money in the long term.
Like all investments, there are also some cons to consider when drawing up an annuity contract. Firstly, many people are of the opinion that the sales commissions on variable annuities are much higher than mutual funds. This often incites middlemen and brokers to suggest annuities, even if it is not the best option in a given situation. Secondly, although they are perfectly safe investments, these products usually have associated hidden costs. It is therefore very important that you look through the terms and conditions thoroughly and ensure that you are paying the right amounts. There may be some risks involved, so make sure you are made aware of these before signing on for anything.
All said and done, these products are considered a safe investment option. So, if you have all the variables clarified and if you have decided on the kind of annuity you want, go ahead and invest in a product that is dependable and profitable.