Top 5 Reasons You SHOULDN’T Buy an Annuity for Retirement

When considering your finances for later in life, it’s important to understand your options. One common retirement planning tool, the annuity, provides financial protection by exchanging present contributions for future income. If you’re worried about the possibility of outliving your retirement, then an annuity might be perfect for you. However, annuities aren’t for everyone. Here are the top 5 reasons you shouldn’t buy an annuity for retirement.

1. Annuities are not government-insured.

Annuities are purchased from insurance companies, not banks. Because of this, any money that you put into an annuity is not insured by the Federal Deposit Insurance Corporation (FDIC) like bank accounts are. If the company that holds your policy goes under, then your money may be in trouble.

2. Annuities can be complicated.

There are many types of annuities; fixed, indexed, and variable are just a few of the most common. What’s more, each annuity and its contract are unique and often differ from one company to another. Once you begin researching annuities, you’ll find that the contracts are complex and can even be confusing. This leads to many people not fully understanding their options and purchasing something that isn’t quite right for their situation.

3. High fees are common.

Before buying an annuity, you should be aware of potential fees that can affect your total cost and reduce the payout. Administrative fees, subaccount fees, and principal protection are just a few fees to know about when buying an annuity. Many fees are unique to specific annuity types, while others, like mortality and expense fees, are always included.

4. You could be too young to buy an annuity.

If you’re under the age of 40, buying an annuity may not be right for you…yet. Annuities are designed to protect your money and provide lifelong income after retirement. If you’re on the younger side, especially if you’re still working, stocks and other investments that offer higher return opportunities are a much better option (for now).

5. You may not have enough money.

The basic formula for an annuity is you pay a premium, and, beginning on a specified date, you start receiving payments that usually last for the rest of your life. If when making this purchase, you’re depleting all of your liquid assets, then an annuity is not right for you! If all of your assets are locked into an annuity, then you’ll have nothing to work with if your roof is suddenly leaking or your air conditioning decides to stop working. Annuities are simply not suitable for a person who has very little savings.

Special Report: Retirement Watch Special Report: The Truth About Annuities and How to Make Them a Lifetime Stream of Income

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