The complexities of annuities often cause would-be investors to ignore the opportunity. However, annuities offer some key advantages that investors ought to consider when planning for retirement.
There is often an inverse relationship between the perceived complexity of a retirement investment and its adoption in the marketplace. Lifecycle (target-date) funds, which we covered recently here—are at the more simple end of the complexity spectrum. For many, annuities are at the other end of the spectrum. For that reason, and several others, annuities are often ignored by investors.
But the key advantage an annuity offers—guaranteed income in retirement—is too important to completely ignore—complexity or no. While the topic of annuities is large enough to fill a textbook, we’ll break it down into smaller bits in a 4-part series over the next few weeks:
What Is an Annuity?
An annuity is essentially a life insurance product that changes over time into a series of payments for the investor. Life insurance pays an insured beneficiary upon death, while annuities pay the insured while they are still living. The idea behind annuities dates back centuries, but recent changes and additions to annuity offerings have made them a more attractive investment vehicle than they once were.
Still, there are several kinds of annuities—fixed and variable—and several stages of investment in an annuity. So even a quick, simplified breakdown of annuities isn’t all that quick or simplified. Ironically, an investment vehicle designed for simplicity is anything but. So, before we lose you, let’s talk about the…
Advantages of Annuities
We’ll summarize the benefits here and probe more in later articles.
There are, of course, some …
Disadvantages of Annuities
The cons of investing in annuities often depend on the type of investor you are and the type of annuity you invest in, but they can include:
In future articles, we’ll get into the details of annuities and why they are an important investment option for physicians and other healthcare providers.