The Pros and Cons of Annuities

There has always been a lot of debate about whether annuities are a good or bad thing. There really is no short soundbyte answer to that question. We have to dig a little deeper to see the pros and cons of annuities.

The majority of criticism of annuities found in many online articles and journals is that they have high fees and low returns. Skeptical investors go so far as to say that annuities are not even legitimite investments. There is, however, no denying that lifetime annuities can serve the function of ensuring that you will not exhaust your retirement savings during your lifetime.

The worst annuities are often said to be equity indexed annuities. Variable annuities are also said to be bad. Lifetime annuities are thought of as good or bad depending on the situation. The skeptics at The Motley Fool, for example, have taken this position.

Discounting the first two types, let's look at the type that is possibly good, lifetime income annuities. Basically, you pay a lump sum of mony to an insurer in exchange for receiving a specified amount of income until you die. One disadvantage is that you can not profit from high returns of stock or bond investments. Another disadvantage is that you can not get that money back until you die, then your beneficiary gets the money back. The thought I having my money locked up and inaccessible does not sit well with me. I think that is only a good option for people who are not able to take responsibility for their own finances. People who are afraid of running out of money during their retirement may find annuities attractive.

If you are financial educated and know a lot about your other investment options, then annuities are probably not important to look at. If however, you do not have the confidence to manage your investment risk or your finances over the long term, then annuities may be an option for you.