If you are under 65, then an annuity of any type may not be right for you but there is a place for them in the right circumstances if you are willing to pay for them.
Many research studies show that you can minimize your risk of running out of money in retirement (longevity risk) by moving 25% of your portfolio into an annuity. If you already have enough income from pensions and social security (both are also annuities by the way) to cover your lifestyle, then your own personal annuities may not be needed.
Cover your basic expenses first with reliable income sources and consider an annuity only if you are short of meeting your basic needs.
Terminology:
Immediate - you start receiving monthly payments (annuitization) as soon as you put the money down to buy the annuity. (Types: fixed, equity-indexed and variable)
Deferred - you put money in to let it grow and then take monthly payments out later (do not compare the growth to stock investments but compare it to your bond/cash/fixed income type investments). (Types: Variable with a variety of living benefit riders, for example, guaranteed minimum income or withdrawal benefits).
Most people who have annuities never "annuitize" them but keep them for tax-deferred growth and this may not necessarily be the right strategy but it depends on many factors.
If you are young, you most likely don't need annuities because you have lots of time to allow your investments to grow, you are working and you don't need annuity income. The only time it might make sense to buy an annuity is if you have maximized all other retirement plans (401k, 403b, 457, Traditional IRA's, ROTH IRA's to whatever maximums allowed - and, if married, both of you).
There are other tax deferred planning vehicles besides annuities to consider also like Variable Universal Life (VUL) and other products. For most of my working clients, middle-income Northern Virginia households, annuities and VUL products are just not needed.
Annuities can be complicated, so I will break up this information.
Rule #1: Immediate annuities provide more income than deferred variable annuities with living benefits (from page 24 of Annuities for Dummies by Kerry Pechter)
An Introduction
Hi. Welcome to BourGroup and my blog. Phil
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.