Top 3 Reasons Why An Annuity Might Be Right For You

Reviewed: February 03, 2015
By FinanceWeb

An annuity is a kind of retirement investment. It is created through one large payment or multiple installments.[1] It is then guaranteed to distribute income to the investor periodically either immediately or at a later date.[1]

While annuities aren’t the optimal retirement solution for everyone, they do have certain strong benefits. Below are three reasons why an annuity might be right for you.

1. You Want Guaranteed Income

When most people refer to annuities, what they really mean is a fixed annuity. Unlike other kinds of investments, fixed annuities are purchased from insurance companies and regulated by state insurance laws.[2]

One great aspect of fixed annuities is how straight forward they are. They start paying out at a certain date. Every payment will be exactly the same. The payments will last until the person covered by the annuity dies. While things may change in a person’s life and in the economy, it’s pretty well assured that the annuity payment will always come in on time.

2. You Might Run Out of Savings

One reason many people choose an annuity as a retirement plan is that they worry that their life savings may expire before they do. One kind of annuity used for this purpose is known as a deferred income annuity.[3] When a person crates this kind of annuity, they set a later date in the future when the annuity will begin providing income.[3]

For example, a person may be convinced that his savings will run out by the time he reaches age 78. If this is the case, he could simply purchase a deferred income annuity that will begin sending him payments at age 78. This insures against the possibility of running out of savings at that age.

3. You Don’t Trust the Market

Lastly, annuities are good options for individuals that simply do not trust market forces when it comes to providing for their retirement. Certain catastrophic market events can indeed wreak havoc on people’s retirement plans. The most recent market crash occurred in 2008. That year, employees with retirement plans saw those investments suddenly get slashed by 14 percent.[4] In, dollars, this was about $10,000 per person.[4]

2008 was not 50 years ago. As a result, many people are still weary of the market. While the economy may at times seem more robust and stable, that could very well be reversed at any given point. For this reason, many individuals see fixed annuities as the sure bet. Certain kinds of investments that are tied to stocks and mutual funds may advertise a better return. However, those are based on positive assumptions about the health of the economy.

While a retirement annuity may be the right choice for many people, others may benefit more from other kinds of investments. Think over the matter thoroughly before you make your decision. Annuities, overall, are best for people that are okay with trading the possibility of higher returns for the absolute guarantee of dependable income.