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what are the pros and cons of annuities?

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That's the type of question that I roll into the office on a Monday morning and think, "wow, there's a lot of different directions I could go with that answer." And truthfully, without more context it would be hard to identify pros and cons relative to your specific situation. If that's your goal, consider giving one of our advisors a call at 800-771-9960. They can provide advice tailored to what you're trying to accomplish. In the meantime, I thought I'd use the opportunity to provide some annuity background and information that might be helpful:


Savings vs. Income. One way you can differentiate annuities is with respect to their immediate purpose. With an income annuity (sometimes callled an "immediate annuity"), you turn over a lump sum of money to the insurance company in exchange for a stream of income that begins right away. The income stream (usually monthly) could last for a set number of years, your lifetime or even the lifetime of you and your spouse. In essence, with an income annuity you are setting up your own personal pension.  A savings annuity, as the name implies, is designed to accumulate funds for retirement. In the future, you could decide to turn what is accumulated into an income stream, but the immediate purpose is to set aside money for retirement sometime in the future.


Variable vs. fixed. Fixed annuities pay interest and are a stable option for those that may be looking for a safe place for a portion of their retirement portfolio. Variable annuities have mutual fund like accounts within the annuity and therefore offer both the risk of loss and the potential return associated with market-based investments. There is also a segment of annuities, called indexed annuities, that are a bit of a hybrid--offering a combination of a fixed return and a portion of returns of underlying market indices (like, for example, the S&P 500).


Tax-deferred.  Accumulation or gains inside a savings annuity is not taxed until the money is withdrawn. Generally, like other retirement plans, that means waiting until age 59 1/2. Withdraw earnings before then and you'll normally be hit with taxes and a 10% early withdrawal penalty. Also, since earnings that are withdrawn are treated as ordinary income you could miss out on favorable capital gains treatment if you're investing in a variable annuity.


The fine print. Surrender charges, fees and expenses, access, and interest crediting/changes are just a few of the many sometimes confusing aspects of an annuity you should understand BEFORE you sign on the dotted line.


Annuities can be an important part of your overall retirement and investment strategy. Asking this question is an indicator that you're going down the path of digging into the details. Good luck.