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Retirees Are Drawn to the Safety of Annuities

The safety of annuities is drawing more and more people in as they become increasingly risk-averse.  In Mark Huffman’s Consumer Affairs article, “For retirees, annuities are earning a new respect,” he also cautions readers to ask questions before purchasing annuities.  Mr. Huffman believes that annuities are boring, and compared to some other (riskier) investments they can be seen that way.  But boring isn’t always bad, especially when boring guarantees you monthly income that you cannot outlive.  Annuities have become increasingly appealing to seniors who are concerned that their money won’t last as long as they live.  Once you turn over a sum of money to an insurance company, they pay you monthly for the rest of your life.  While you are hoping that you live a long life and get the most out of your annuity, the insurance company is hoping the opposite.  And that’s okay because some people live a long time and others do not.  Also, no one really knows how long they will live, so you have to insure against the risk of outliving your money.

2013 was a good year for annuity products.  Nearly every type of annuity had double-digit sales growth, according to an Annuity News article.  It can be possible to get higher returns with other investments, but they are not as safe as annuities.  Retirees and pre-retirees are looking for guarantees when it comes to their money, even if they sacrifice some gain.  Make sure to get your annuity information from an unbiased source.  Insurance companies do make money off of annuity sales, so speak with an outside source or contact multiple insurance companies about annuity offers before making a purchase.  Some people choose to add a survivor benefit to their annuity product so that a spouse will continue to receive monthly payments even after they die.  This makes your annuity cost more, so consider opting out of this added rider if you have life insurance or your spouse has their own annuity or pension payments.

You have the choice of immediate, variable, fixed, equity indexed, and more when it comes to annuities.  Immediate annuities are typically the simplest and according to this article, will likely work for the largest amount of people.  Immediate annuities use your principal and interest to create your income stream, so you don’t have to worry about maintaining your principal like with other investments.  These annuities offer you the potential to create a pension-like stream of income to last throughout retirement.  This article sees more negatives than positives with equity indexed annuities because they offer a lower overall return than long term stock market investments.  Equity indexed annuities certainly are not the simplest form of an annuity, but their increasing popularity shows that they do have a place in the market for those people looking for their specific benefits.  As people tolerate less and less risk, each type of annuity is likely to continue its increasing popularity with retirees.

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