Annuity Pros & Cons

An annuity is basically a tax-deferred accounts that allows one to deposit their

money over a specific period of time or a lump sum mode to receive payments either once or periodically at the specific future point such as retirement. There are a number of pros and cons that can be associated with Annuities. A better understanding of advantages and disadvantages of Annuities can help a person in making the right decision about personal retirement planning with the money and suitable investments that he or she can indulge into.

Understanding of the pros and cons related with Annuities and other retirement plans means a good understanding of the difference in non-qualified and qualified annuities, tax advantages, insurance clauses and fees.

Function

The function of Annuities is taking care of the aspects of a steady income generation after retirement. People are often worried about their expenses and savings after retirement. This is the most probable reason of making people interested in buying Annuities.

Features

Annuities are basically structured to guarantee a fixed payment or some kind of variable amount that is completely dependent on the performance of their annuity investments. Sometimes variable Annuities also offer great returns but there is always a greater risk.

Qualified Vs. Non-Qualified

A qualified annuity is basically an annuity contract in form of an IRA account. On the other hand in non-qualified annuity does not have any deposit limits like IRA. In non-qualified annuity contract can prove to be a great supplementary retirement savings plan.

Benefits

An annuity is meant to provide payments for the period of your life after retirement or death of your spouse, regardless of how much ever you live. The payments may also exceed your origins of contributions.

Considerations

In case you meet early death after retirement, the investment that you make is lost and does not get passed on to your natural heirs. However, a number of insurance companies pay beneficiaries at least a minimum death benefit.

Warning

Before investing in an annuity, make sure that you have understood all the applicable fees and commissions associated to it. Read terms and conditions to verify that you do not have to face heavy charges in case you surrender the annuity.

by: Brian Sibet

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