Pros and Cons of Buying Annuities!

Annuity retirement accounts present a helpful way of earning money on your savings, instead of just getting nominal earnings through a usual savings bank account. You get different kinds of annuities, each having its own benefits and limitations. It is therefore imperative for an investor to know the pros and cons of buying annuities before making any investment.

Identification

If you visit the website named Investment FAQ, you’ll find that there are two kinds of annuities available, namely the fixed ones and the variable kind. On choosing to invest in fixed annuities, you can be assured of a fixed amount towards your retirement income. The worth of variable annuities, on the other hand, keeps fluctuating as per market conditions. Investors also have the choice of having an immediate annuity that starts paying soon after they open an account or they may get deferred payment till a prefixed date. So, when it comes to assessing the pros and cons of buying annuities, investors will appreciate that fixed annuities provide a dependable source of income, guaranteed for life of the investor. Though variable annuities offer the prospects of earning more funds, compared to the fixed kind, the former also present the risk of losing money if the market conditions become unfavorable.

Function

Look at annuities as a vehicle that allows investors to receive money wherein tax gets deferred. Annuities help transforming total amount of money for obtaining a regular amount of money for long time. Fixed annuities also offer the advantage of protection of principal amount, meaning the investor is guaranteed of getting back his principal amount. As fixed annuities are invested in low risk secured investments, the interest they pay remains low for as long as the account remains there. In nutshell fixed annuities are the safest choice but investors are denied the benefits of a fluctuating market.

Accessibility

While considering pros and cons of buying annuities, investors should not overlook the penalties to be paid for withdrawing money. Having invested fund in an annuity account, the investor can expect either an immediate distribution or a differed one. In certain cases, investors are permitted to withdraw funds on facing financial emergency, but generally one is required to pay a penalty for withdrawing funds before a specified period of time, which could be five years or even more.

Effects

Going by the information provided by Investment FAQ, the prospects of earning more money are directly proportion to the kind of risk the investor is willing or can afford to take as the earnings are subject to fluctuating market conditions. You cannot rule out the possibility of finally earning an amount less than what you had invested initially.

Considerations

Because of the tax shelter that annuity investments offer, they make a viable option if one wants to shift funds from 401k or IRA account. As annuities are treated as tax exempted savings account, there is no tax penalty on shifting funds from other kinds of investments. Then, there is also the choice of safeguarding earnings from annuity against inflation by buying added inflation protection. Though this kind of protection helps maintaining earning level, the expense of getting this coverage could be so substantial that distribution amount is reduced.

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