Annuities: To go for or not?

Choosing an annuity for retirement is a very serious decision with a long-term impact. This is where lots of due diligence is required. 

Investors and retirees need to be very careful when choosing an annuity

Annuities can be purchased from insurance companies together with life insurance. Often, salesmanship comes into effect as insurance salesmen or financial advisors stand to benefit financially from a sale. This is where the risk is. As annuity fees can be high, it is necessary to review carefully what is offered, how much it costs, and what is guaranteed.

Annuity fees can be daunting. There are management fees (just like with other fund investments), mortality and expense charges (related to commissions and administrative expenses), and surrender charges (if annuity is cashed prior to a specified date). These charges make investing rather expensive, and are one of the biggest disadvantages of an annuity. Nevertheless, many retirees still go for them, especially because of promise of fixed payments ‘til the end.

So consider pros and cons of annuities before investing, and read the contract. Indeed, when making an investment to secure retirement years, it is necessary not to give into sales pressure, and instead take a contract and prospectus home to review carefully. Remember: many financial advisors are salespeople who get paid for selling.

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