FITNESS MIX – SAM

Annuities are insurance contracts that can provide guaranteed lifetime income in retirement. But they also come with complexities and drawbacks to consider. Here are some key pros and cons when evaluating annuities:

Pros:

– Lifetime income – One of the main benefits of an annuity is ensuring lifetime, consistent income that you cannot outlive. This protects against the risk of outliving savings.

– Tax deferred growth – Earnings in an annuity grow tax deferred. You only pay taxes on withdrawals. This allows faster accumulation compared to taxable accounts.

– Death benefit – Most annuities offer a death benefit that passes to beneficiaries if you pass away before receiving income. This guarantees your heirs get a payout.

– Large selection – There are many types of annuities with unique features. You can shop around for one tailored to your needs.

Cons:

– High fees – Annuities can come with very high fees that eat away at returns. Be sure to compare fee structures carefully.

– Illiquidity – Most annuities have surrender charges if you withdraw funds early. Accessing your money usually requires waiting 5-10 years.

– No guarantees – Variable annuities invest in the market, so income payments can fluctuate. Guarantees are tied to the claims-paying ability of the insurer.

– Complexity – With many contract variations, annuities can be complex. Understand the terms before purchasing.

Annuities make sense for some retirees but require research to understand tradeoffs. Weigh the benefits against drawbacks based on your individual situation.