When it comes to retirement savings, there are mixed emotions about what would suffice as the best option. The majority of people understand that they need to acquire some type of savings account for life after employment, but that is typically where their understanding ceases.
Whatever you chose as your option for building up your financial safety net, it will greatly benefit your future. As valuable as retirement annuities are, no one option is without its drawbacks. Before you pursue the option that would best suit your needs, you should first brief yourself on the pros and cons of annuities.
Without a retirement savings account, your chances of being able to generate enough income to to maintain your lifestyle in retirement is smaller. Here are some pros of annuities:
You are guaranteed income for life, if set up appropriately.
With an annuity, you will be provided with financial support that you can’t outlive. Because we are so used to working for consistent income, many don’t realize how expensive their lifestyles can be and how quickly their funds can deplete. Once you aren’t working anymore, you need to ensure you are making enough to live off of for the rest of your life.
Your annuity income won’t be taxed until you withdrawal.
If set up appropriately, you will not have to pay taxes on the money accumulating within your annuity until you begin withdrawing from it. This is a perk that allows you to have more control over your money.
You will have a more stable rate.
Your return is typically guaranteed and there should be no downside when you use the right type of annuities. With certain annuities, you are guaranteed a more stable rate, which helps to eliminate any uncertainty about your finances. If you feel more comfortable with predictability, this is the best option for you.
No retirement savings option is perfect; all come with a few drawbacks. This is why it is important to do your research to ensure that the pros outweigh the cons as it pertains to your specific situation. Here are some cons of annuities:
There are a lot of complexities involved with annuities.
Because there are different types of annuities, traversing your options can become a little complicated and you really have to delve into the complexities of each so that you understand what exactly it is that you are signing up for.
It is expensive to withdrawal a substantial amount early.
Just because it is your money does not mean that you are entitled to withdraw it immediately. Typically, if you take out a withdrawal of 10% of more in the early years, you could be hit with a surrender fee. Every year that passes, that surrender fee typically will go down one percentage mark, until you hit the allotted period where you will not be penalized for withdrawing your funds.
Annuities are a complex realm for those who have no experience with this type of investment. But don’t let this intimidate you – learn what you can, understand the pros and cons of all of your options, and make the most informed decision about your financial future.
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