Is an Annuity Right for You?

We often hear the question, “Is an annuity right for me?” Clients take peace of mind knowing that we don’t sell annuities and therefore don’t receive commission for our advice regarding them. 

With that said, there are two basic types of annuities: fixed annuities and variable annuities. 

A fixed annuity is very simple to understand. The customer gets paid a guaranteed amount that does not fluctuate over a specific amount of time. It works very similarly to how a CD works, with a slightly higher interest-rate. With a fixed annuity, the default risk can be quite low. Often times they are guaranteed by the provider and the state. 

Variable annuities are much more complicated, and often times are misunderstood in the marketplace.

  • A variable annuity payout is determined by the performance of the investments chosen and therefore can fluctuate. 
  • A variable annuity often times has expenses which are much higher than what the customer expected or understood. 
  • There are a wide range of different types, with different benefits, and those benefits can change every year. This makes them complicated to understand, hence why we receive so many questions regarding them.  
  • Often times, the annuity must be annuitized in order to receive the income guarantees. That means that the residual value (balance of the value) is forfeited should the customer die prematurely. It’s for that reason, the vast majority of annuities are never annuitized, which eliminates one of the main reasons that they were sold (bought) in the first place.

If you have an annuity and want objective, empirical advice, please contact us. We are happy to be a resource for you. We will work directly with the institution that made the annuity to help you understand the contractual agreement and how to make it best fit your needs.

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