{"id":5926,"date":"2019-04-11T14:25:00","date_gmt":"2019-04-11T14:25:00","guid":{"rendered":"https:\/\/www.annuityfyi.com\/?page_id=5926"},"modified":"2023-05-22T10:47:35","modified_gmt":"2023-05-22T10:47:35","slug":"should-you-buy-an-annuity","status":"publish","type":"page","link":"https:\/\/www.annuityfyi.com\/guides\/should-you-buy-an-annuity\/","title":{"rendered":"Should You Buy an Annuity? That Depends \u2013 But You Certainly Should Take a Good Look at One"},"content":{"rendered":"
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The fact is, however, most retirees, including millionaires, periodically worry about the possibility of running out of money. And if those people had retired in 1999 or 2007 \u2013 just before two of the biggest bear markets ever \u2013 they indeed would have had plenty to worry about for years.<\/em><\/strong><\/p>\n\n\n\n

Let\u2019s say you\u2019re 65 years old and a relatively successful, long-term stock and bond market investor. Should you \u2013 or you and your spouse \u2013 consider buying an annuity to supplement your cash flow in retirement and hedge against a reawakening of volatile financial markets?<\/p>\n\n\n\n

As is the case for almost everything in the investment and investment-related arena, the answer is maybe. Among other things, it depends upon your risk tolerance and how much you personally want to pilot your investments. It also is contingent upon whether you have a problem with paying relatively high fees for some annuities, regardless of whether they are worth the price of admission.<\/p>\n\n\n\n

That said, the right annuity makes a lot of sense for our aforementioned 65-year-old and at minimum warrants a serious look. In many cases, annuities are essentially the private sector equivalent of Social Security. In the end, what\u2019s not to like about an additional guaranteed stream of income for the rest of your life and your spouse\u2019s life?<\/p>\n\n\n\n

You can quibble about the expense, but annuities are insurance products and insurance products are not inexpensive. But not many people complain about insurance if they have it and it turns out they need it.<\/p>\n\n\n\n

Many investors try to accumulate as much money as possible to sidestep the worry of running out in their golden years. They figure the more assets they have, the less they have to worry about financially. The fact is, however, most retirees, including millionaires, periodically worry about the possibility of running out of money. And if those people had retired in 1999 or 2007 \u2013 just before two of the biggest bear markets ever \u2013 they indeed would have had plenty to worry about.<\/p>\n\n\n\n

The degree of financial worry comes and goes with the times. Today, we\u2019re in the midst of a strong bull market and, in fact, with the exception of a brief period in early 2020, have been in one for more than a decade. This means retirees have been able to withdraw 4% or 5% annually from their non-guaranteed accounts for years without worry.<\/p>\n\n\n\n

Will it last? Who knows? But what is virtually certain is that another bear market will arrive at some point, generally hitting retirees harder than non-retirees. Younger investors can look at a market opportunity as a buying opportunity. Retirees can, too, but for them it\u2019s much riskier because they have less income and far weaker earnings prospects. No question, most seniors want to sidestep the stress. <\/p>\n\n\n\n

Without an annuity, seniors also have had to cope with year after year of unusually low bond interest rates \u2013 the most common investment alongside stocks. Rates  rose somewhat in 2021 and likely will rise further in 2022 because  of inflationary issues, but barring unlikely huge and sustained increases in inflation, still will probably not exceed the inflation rate at all or by much. That\u2019s fundamentally a disappointing investment.<\/p>\n\n\n\n

In today\u2019s environment, popular fixed indexed annuities (FIAs) may be the best annuity option for most retirees and near-retirees. They offer relatively generous guaranteed income riders, stock market participation and a guarantee that investors lose no money in down markets. It is true that market returns are also less \u2013 most FIAs pay no more than 30-35 % of an annual gain in the stock market. For many folks, however, this is a reasonable trade-off in exchange for no market losses.<\/p>\n\n\n\n

Again, however, annuities are not for everyone who can afford them. Because many offer lifetime income and all offer death benefits, their fees are higher than those of standard investments. These can commonly be up to 3% annually. For those who midjudge their ability to stay the course in an annuity, there are also steep surrender charges up to about 10 years. <\/p>\n\n\n\n

Annuities also are not attractive for seniors who take pride in investing all of their money on their own. Personal control can backfire, but so can professional management. In addition, some people are also conservative spenders, as well as conservative investors, and might find an annuity unnecessary in their case. <\/p>\n\n\n\n

Lastly, it\u2019s important to note that many annuities aren\u2019t particularly well suited for growth. Even the best variable annuities, which pay full boat on increases in the stock market, have limited investment choices and often restrictions on moving money among separate accounts (mutual funds). And plain vanilla fixed annuities, as well as fixed income annuities, were designed to compete with conservative certificates of deposit. So, predictably, they haven\u2019t historically rivaled the returns of more robust investments.<\/p>\n\n\n\n

The bottom line has not changed: The right annuity makes a lot of sense for many seniors but not for everyone \u2013 whether they can afford one or not. <\/p>\n\n\n\n

For more information about the product mentioned in this article contact us here:<\/strong><\/p>\n\n<\/div><\/div>\n\n

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The fact is, however, most retirees, including millionaires, periodically worry about the possibility of running out of money. And if those people had retired in 1999 or 2007 \u2013 just before two of the biggest bear markets ever \u2013 they indeed would have had plenty … <\/p>\n

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