Tags: Retirement | retirement | annuities

4 Things You Need to Know About Annuities

By    |   Saturday, 13 June 2015 07:27 PM

Many retirees turn to annuities as an investment strategy. By purchasing these insurance products, a steady income stream is promised month after month.

While some call them a safety net for cash flow, others say they come with some challenges. Here are four things to know about annuities.

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1. Complexity
It's not as simple as it looks, US News & World Report warns. Deferred annuities allow investors to create a nest egg over the years. Those get invested, and when you retire, the payout is contingent on how well those investments have performed.

2. Uncertain Payout
It's the great unknown for what you might reap. While annuities are not usually tied to inflation rates, the payout you get today may be far too little as the years wear on.

3. Risk
They are risky. If the insurance company under which you purchased your annuities goes bankrupt, your money could be lost. Also, while some states offer partial insurance for annuities, they are not protected by the government.

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In addition, annuity payouts are tied to age, gender and the prevailing interest rate. In time, when those rates are low, annuity payments also dip and can significantly affect your payouts.

4. Fees
Watch for fees that an insurance company likely does not itemize. Many annuity programs are loaded with fees that you rarely see, Elle Kaplan, the CEO of Lexion Capital Management, told US News.

Among those fees are mortality and expense charges, surrender charges, and management fees, The Motley Fool noted.

"The fees and expenses imposed by annuities indicate they are undoubtedly costly to own, and they absolutely are not meant for the short-term investor," The Motley Fool wrote.

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Many retirees turn to annuities as an investment strategy. By purchasing these insurance products, a steady income stream is promised month after month.
retirement, annuities
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2015-27-13
Saturday, 13 June 2015 07:27 PM
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