Renwanz Insurance & Financial Solutions, Carlsbad, CA
In general, there are two types of annuities: variable annuities and fixed annuities. Variable annuities are often described as mutual funds inside an insurance contract. Variable annuities have fees that are higher than fixed annuities, and while they are subject to market gains, they can also be subject to market losses. It is possible to lose principal in a variable annuity. Surrender charges apply and can be significant in the first few years. Insurance companies take your annuity money and make long-term commitments using that money and if you decide to pull your money out on an accelerated schedule other than that which was originally agreed upon, they can lose out on their long-term investment.
Fixed annuities, which include indexed annuities, are not subject to market losses and most come with the commitment to "never go down" in value. Fixed annuities have penalties for early withdrawal and they are significant in the first few years. You are generally allowed an amount you can withdraw "penalty free" each year - around 10%. Fixed annuities are not FDIC insured. They are based on the "claims paying ability and financial strength of the issuing insurance company". Look at the history of insurance companies over the past 100+ years and you'll probably favor what you see over the banking industry.
While there are some "annuity bashers" out there, they generally have a product they are trying to sell that suits their agenda or wallet. Annuities should be considered a long-term product and if you purchase an annuity, you should only do so with money you are certain will not be needed over the life of that annuity. There are penalty free withdrawal provisions and you should be aware of what those are.
Annuities have lots of advantages and certainly some disadvantages as well. As always, the suitability of a financial product is based on your specific situation and needs and a licensed, qualified financial professional should be sought out to help.
That is a great question! The biggest disadvantage to annuities is the lack of liquidity. For the first few years of the annuity, there are hefty surrender fees if something happens, and you need to pull some cash quickly. Most annuities will allow for a small fee free withdrawal, generally up to 10%, but by taking even that cash, you greatly reduce the earnings potential of the annuity. Another disadvantage would arise if the rate of return on the annuity ended up being lower than what you might have received had the money been invested differently. If you've got sufficient cash reserves and have done your homework before buying, neither of these should be an issue. Thanks for asking!
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Fixed annuities, which include indexed annuities, are not subject to market losses and most come with the commitment to "never go down" in value. Fixed annuities have penalties for early withdrawal and they are significant in the first few years. You are generally allowed an amount you can withdraw "penalty free" each year - around 10%. Fixed annuities are not FDIC insured. They are based on the "claims paying ability and financial strength of the issuing insurance company". Look at the history of insurance companies over the past 100+ years and you'll probably favor what you see over the banking industry.
While there are some "annuity bashers" out there, they generally have a product they are trying to sell that suits their agenda or wallet. Annuities should be considered a long-term product and if you purchase an annuity, you should only do so with money you are certain will not be needed over the life of that annuity. There are penalty free withdrawal provisions and you should be aware of what those are.
Annuities have lots of advantages and certainly some disadvantages as well. As always, the suitability of a financial product is based on your specific situation and needs and a licensed, qualified financial professional should be sought out to help.