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Annuities |
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ProActive Financial Planning A Consumer Advocacy Organization
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Annuities |
Are Annuities Right for You?
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Quick Links Annuities in GeneralThe Pros and Cons of Annuities Index Annuities |
Annuities can be a great investment vehicle but they may not be great for you. If you are a risk adverse investor, annuities offer a guarantee backed by an insurance company that insures an investor's investment against losses. The question is, "are you a risk adverse investor?" No one likes risk. However, some investors can bear more risk than others. Elderly investors on a fixed income who cannot afford to risk their principal may be good candidates for annuities. Younger investors who cannot stomach short-term volatility in the market may want to consider the protection of an annuity. Investors looking for tax-deferred growth and have exhausted all other means, may be good candidates. For everyone else, other investment options should be considered. Here is the trade off. Yes, annuities offer protection unlike other investment vehicles. However, this protection comes at a cost and the cost can be high greatly reducing your potential return and future value. On a year-to-year comparison, the difference may be insignificant. However, over longer periods of time, your potential future value could be substantially reduced. If annuities are only good for a such a small group of investors, why are they so popular? Annuities offer sales advisors who sell them lucrative commissions. For some unethical sales advisors, the bigger the commission the more likely they are to solicit a wider range of investors. Annuities are usually offered by insurance agents and other investment advisors and aggressively pushed by those who are entirely commission based -- buyer beware! If a Certified Financial Planner™ is part of your financial planning team and another advisor (e.g. 403(b)/TDA) is recommending an annuity, have your CFP® review the recommended annuity for appropriateness. Suitability:
On the flip side of advisors trying to make healthy commissions, you have editorials from prominent financial magazines apposing annuities and recommending low or no-loan mutual funds as a viable option. They are just as guilty at providing biased information at the cost of the investor. Don't be misguided buy what you read. They too have an agenda and that is to support their sponsors. It would be foolish for an editor to bite the hand that feeds them. The next time you read an adverse article on annuities, know the qualifications of the writer. A writer is not a professional simply because the are an author or senior editor. What are their credentials. Also, look at the advertisers to see who they need to support. For the right investor, annuities can be the best option. The question is, what annuity is right for you? |
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