Broker Check

Is An Annuity Right For Me?

April 29, 2019

Last month I touched on investing and addressed some of the challenges we have as investors each year as we try to digest and make decisions based on market news and forecasts.

In that write up I mentioned alternatives to that traditional stock/bond investing route so today I want to take on the topic of one of those alternatives, annuities. Like stocks and bonds, annuities can be a great tool for future growth and or income but like everything else out there they are not necessarily the right tool for everyone.

So what types are there and how do you know if they're right for you?

There are annuities that:

  • Limit downside loss
  • Give you an immediate stream of income (like a pension)
  • Give you a stream of income at some point in the future (ex: 10 years)
  • And that even may give you a boost on interest rates over that of investing in a CD.

Questions then to ask yourself as you try to identify if one of these may be something to look into:

  • Are you afraid to invest the money you've saved and are you wanting to find an option that will let you invest for some growth but that will limit your losses in down years?
  • Do you think the saving that you're doing now is going to fall short of your future income needs?
  • Are you afraid that you'll live longer than your money does?

If you answered yes to any of these questions, an annuity MAY be something to look into but don't just run to the finish line here. To go further and figure out if any of those are truly right for you, it takes coming up with a plan.

There are three steps to that process.

  1. Figure out how much you'll need (and when you'll need it).
    Example: I want to retire at 67 and at that time, I know I need $X,000 a month to live
  2. Review what you have and how much income that may be able to provide you.
  3. Talk to a professional to discuss options. It's very important here to talk to someone that isn't just answering the question based on a commission that they would be making IF you purchase. I highly recommend talking to someone that will discuss annuities as one of several possible options and creating an actual plan for your money before selling you a product.

Making this decision is not an easy one. Annuities typically have a required holding period, will have expenses and some complexities that you'll want to fully understand before you sign on the dotted line.

At LOTUS, we find that yes, annuities are right for some of our people, but they are not right for all. If you're considering this path, we'd be happy to sit down with you to discuss your options and answer your questions.