Who Should Buy An Annuity

Who Should Buy An Annuity

This post will help you decide Who Should Buy An Annuity.  There are many types of annuities.  In many cases an annuity is a contract between a person and an insurance company.  Often, the person is giving the insurance company an amount of money for a guarantee of future income.   Now there are multiple types of annuities the make finding the right annuity more complex.  The Single Premium Indexed Annuity (SPIA), Fixed Indexed Annuity and Deferred Income Annuity all popular but have different uses.

There are many cases where annuities make sense for folks planning to retire soon. At the same time, there times when an annuity is the wrong choice.  You are very likely better off with no annuity as opposed to the wrong one.

The easiest Annuity to place incorrectly is the SPIA.

SPIA create guaranteed lifetime income streams.  They are very useful for creating a pension stream but it would not be advisable for someone to put the entire value of their portfolio in it. When you think about it, investing your whole portfolio into a single investment doesn’t make sense for any financial instrument.

All states now regulate annuities in order to protect consumers against putting all their money in an annuity.  The key is to diversify.  There is certainly a place for an annuity in a portfolio but usually putting all your money in an annuity is not wise.

The second big consideration is whether you’re looking to invest or simply to secure current of future income.  If you are looking for income Immediately, a SPIA is the best choice, if you are looking for income down the road, a Fixed Indexed Annuity is likely the best bet.   If you are looking to grow your investment, you must take great care with the annuity you choose.  A limited number of annuities have enough upside potential to make them a viable investment option for growth.

I didn’t mention a place for Variable Annuities here.

Variable annuities do not work off guarantees.  They try to act like a true investment where your account value can go up an down with the market.  In my opinion, if you want an investment and don’t mind downside risk, the market is full of mutual funds, ETFs, stocks and other investments. Accessing the stock market through a variable annuities an expensive and roundabout method. Essentially, you’re paying a middleman, the insurance company, to invest in the stock market. It’s much simpler to just do it yourself. If you’d prefer not to, professional money managers typically charge lower fees than variable annuities.

Overall, it is usually better to buy an annuity for its contractual guarantees as opposed to its growth potential.  As mentioned above, there are a few with strong growth prospects such as the Security Benefit Total Value Annuity but the list is limited.

An annuity can be immensely helpful to those looking for current or future income, death benefit guarantees or safe and conservative growth.  They key is to choose wisely and know what you are buying.