What are annuities? Why should you know about the annuities pros and cons? So, annuity is a contract between the insurance company and the inference burger. When the insurance buyer pays the annuity in the form of a lump sum or installments. As every person wants to have a continuous and stable flow of income after retirement. Therefore, you should know about the annuities pros and cons.
What Are Annuities Pros And Cons?
Annuities pros and cons will help you while purchasing the annuity plans. So, read below,
Pros
- Financial inflow for lifetime
- Tax saving
- Provides financial protection against inflation
- Principal protection
Cons
- Annuity plans are inflexible
- Lower rate of return on investment
- High cost
Let’s understand the annuities pros and cons in detail.
Annuities Pros
Before going to know the cons of annuities, take a look at the annuities pros.
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Financial Inflow For Lifetime
One of the best pros from the fixed annuities pros and cons is financial inflow for lifetime. But many people are still concerned about annuities and want to know whether are annuities a good investment. The answer is, yes annuities are good investments for those who want a reliable income stream during retirement.
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Tax Saving
Most of the annuity plans offer the benefits of tax exemption under the applicable section 80C and 10D of the Income Tax Act. As such, it adds to the overall accumulated fund while providing guaranteed payments to the policyholder. It’s okay, but how do annuities work? So, through annuitization, your purchase payments are converted into periodic payments that can last for life.
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Provides Financial Protection Against Inflation
There are so many alternatives to annuities but not every alternative provides financial protection against inflation. Annuity plans are specially designed keeping in mind the various factors like growing medical expenses, inflation, and many more.
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Principal Protection
If you are looking for what is better than an annuity for retirement, you may be unaware of the annuities benefits. Because, one of the prominent features of a fixed annuity is that the value of the annuity is guaranteed to be the same or above the invested amount.
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Annuities Cons
After knowing the pros of annuities. Now, it is time to know about the annuities cons.
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Annuity Plans Are Inflexible
One of the common cons from the fidelity annuities pros and cons is, the inflexible nature of the plans of the annuity. Since the major focus of the annuity plan is the management of the retirement fund, it does not offer the advantages of partial or premature withdrawals. Also, if some plan offers the option of premature or partial withdrawals then it comes with strict rules and regulations.
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Lower Rate Of Return On Investment
The other cons of the annuity plan is the lower rate of return as compared to the other market-linked investment instruments. Also, the fixed annuity plans offer fixed guaranteed returns, which is lower than investment returns offered by other market-linked instruments.
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High Cost
The annuity plans have higher costs because of management fees and sales commission. Besides this, some of the annuity plans offer very high purchase costs. So, it is always advised that while purchasing an annuity plan make sure you do proper research and know exactly what you are paying for.
So, you know the pros and cons of fixed annuities.
FAQ
Are Annuities Ever Worth It?
Annuities Are A Good Investment For People Wanting A Reliable Income Stream During Retirement. Annuities Are Insurance Products, Not An Equity Investment With High Growth. This Makes Annuities A Good Balance To A Financial Portfolio For Someone Near Or In Retirement.
What Are Advantages And Disadvantages Of Annuities?
An Annuity Is A Way To Supplement Your Income In Retirement. For Some People, An Annuity Is A Good Option Because It Can Provide Regular Payments, Tax Benefits And A Potential Death Benefit. However, There Are Potential Cons For You To Keep In Mind. The Biggest Of These Is Simply The Cost Of An Annuity.
What Is The Downside Of An Annuity?
The Main Drawbacks Are The Long-Term Contract, Loss Of Control Over Your Investment, Low Or No Interest Earned, And High Fees. There Are Also Fewer Liquidity Options With Annuities, And You Have To Wait Until Age 59.5 To Withdraw Any Money From The Annuity Without Penalty.
Can You Lose Money With Annuities?
In A Basic Life-Only Income Annuity, The Payments Are A Set Amount And They Continue At That Exact Level For As Long As You’re Alive. Although Your Payouts Are Preset And Guaranteed At A Specific Level, You Could Lose Money If You Died Younger Than Expected.
Are Annuities A Good Investment?
Annuities are a good investment for people wanting a reliable income stream during retirement. Annuities are insurance products, not an equity investment with high growth. This makes annuities a good balance to a financial portfolio for someone near or in retirement.
Do Millionaires Use Annuities?
They use annuities for a variety of reasons, including estate planning, tax savings, and more. In this guide, we will discuss some of the most common reasons why high net worth individuals use annuities.
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Conclusion
While going through the pros and cons of the annuity you can clearly say that, annuity plans are very beneficial during your retirement but you need some knowledge about them. Because there are plenty of annuity plans, therefore, to pick a proper and correct plan you need to do some research and knowledge. Who should not buy an annuity? If you are in below average health, or you are seeking high risk in investments, if social security or pension benefits cover all your regular expenses, then don’t buy an annuity plan. This is about the annuity pros & cons.
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