Retirement Funds And Annuities

Seniors planning for their retirement can put their savings into a number of products that can guarantee steady income

. An annuity is just one of these potential sources of income that allows the buyer a lot of flexibility and financial protection.

Annuities are financial contracts that combine the guaranteed payouts of life insurance policies with the investment capabilities and tax-deferral savings of retirement accounts. Annuities can be seen as a mirror-image of life insurance policies, as life insurance protects your finances in the case of untimely death, while annuities buffer you from running out of money during your retirement. Life insurance also creates principal, while annuities eventually liquidate principal that has been established through regular payments over a certain period.

Annuities are available in various types, each of which have different features and costs that seniors should consider before dipping into their investment funds. These products come in two basic kinds: deferred and immediate. Annuities distribute funds via lifetime income, systematic payout, and lump-sum payout, which are given after the deduction of costs.

Although the guaranteed-income aspect of annuities is what makes these popular, you should also consider the financial disadvantages. There are many costs you need to pay, mostly due to the annuity's similarity to life insurance products. Insurance costs (which funds guaranteed death benefits and the agent's commission), management fees (which pay the sponsor of the annuity for handling the investment and coming up with reports), and administrative fees are just some of the related expenses.

Many critics say that annuities are problematic because of the surrender fee the buyer has to pay when the principal is withdrawn or removed early. This comparatively hefty surrender fee is also compounded by an even bigger government penalty for early removal, giving the impression that the buyer is trapped by the annuity.

Annuities are fairly complicated sources of income, turning these into points of debate among many financial and retirement planning experts. Some of these experts even claim that the flexibility and guaranteed income you get from annuities aren't enough to overshadow their costs, especially when you compare these to other possible investment options. When buying an annuity, you should know that products for retirement income still come with a degree of risk, and should only be used to augment your retirement funds along with other investments.

by: Carina Smith

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