It’s one of the great financial planning ideas to have annuities explained to you before you end up making investment decisions. And it could help if an expert explain annuities to you. Investing money is an important decision and you should never rush into things without knowing what it is you are really signing up for. When done right, investing in annuities can really improve your retirement savings, but there can also be disadvantages. Knowing the pros and cons is important so you can make educated decisions regarding your finances.
There are some tax advantages with annuities. If you leave the money intact, the taxes on it are deferred. If you anticipate being in a lower tax bracket when you retire, this can be a real advantage and can save you a good deal of money.
Fixed annuities have a guaranteed rate of return. This means you can count on getting the guaranteed rate, but it may also mean a lower rate of return than if you were using other types of investments.
Another reason you may want annuities explained is to understand variable annuities. These may also have a guaranteed minimum rate of return. If the economy is doing well, you may end up getting more. If it’s not in good shape, you can at least count on the guaranteed rate with these types. If they do not have a guaranteed rate, what you get back depends on the going rates at the time. This can be an advantage or a disadvantage, depending on the economy.
Another factor is the type of fees you may end up paying. This is an important reason to have the variable annuities explained to you, because it can really impact the overall return on your investment. High fees are attached to some kinds of annuities. There is also the fact that, if you withdraw your investment early, you will end up having to pay fees and penalties. This can greatly impact the total amount of your investment. Annuities are less liquid than some other kinds of investments, so you could end up heavily penalized for withdrawing your funds earlier than expected. You may want to invest in other ways as well, in case you need your money earlier.