Right now, it is no surprise that many people are concerned about the returns offered by stocks, and are looking for something that is a little more stable. This is why annuities have seen a recent surge in popularity. Here is a question I recently received from a reader:
I am worried about the irregular returns offered by the stock market. An annuity seems like just the thing to provide more stable returns. A variable annuity seems like just thing, guaranteeing against losses, while offering the opportunity to see larger gains. Is a variable annuity a good idea?
As with all things personal finance, it is up to you to decide whether a variable annuity is a good idea in your specific situation. But it can help you to have a little more information to help you make a decision.
First of all, realize that a variable annuity is different from a fixed annuity in that there is more flexibility with a variable annuity — along with a greater risk that you won’t get as much as you would like. It is also worth noting that right now many companies are reducing their guarantees and increasing their fees when it comes to annuities. This is especially true of variable annuities, so carefully consider why you want an annuity, and what you hope to accomplish. If it is part of a balanced retirement plan or investment portfolio, perhaps that is a good reason for one. If your entire reasoning is driven by fear, it may be time to step back and reconsider.
If you are a long ways away from retirement, an annuity may not be the best option. Instead, you might consider a low-cost index fund. Over time, the stock market has traditionally gained, and if you have a 15 – 25 year timeframe, you might do well with index funds. If you are close to retirement and have enough to sock into an annuity that will guarantee to you a fixed income. Immediate annuities have been very popular in recent years due to their ability to provide regular income.
Remember, though, that any investment can result in loss. And realize that even with guarantees on annuities, insurers can go down, and you can lose some of what you thought you were gaining. In the end, it is a good idea to study your options and yourself, and look at what else there is available to you before locking in an annuity.
Disclaimer: I am not a financial professional. Any information you get from this site is not intended as advice. It is likely to be incomplete, and it may not apply to your individual circumstance. Do your own research, consider your situation and/or consult a professional before making money decisions.
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