The Pro’s and Con’s of buying an Annuity
Protecting your financial health with the right retirement plan is a responsibility that nobody can afford to ignore. The decisions revolving around your pension are undoubtedly among the most important of all, and an annuity is one of the options that you’ve probably heard about.
Before rushing into a decision one way or another, it’s imperative that you understand the potential benefits and drawbacks – not least because it is often not possible to undo your decision. Here’s all you need to know.
Annuities At A Glance
In essence, an annuity is an agreement in which you trade your pension (or at least a part of it) for a guaranteed income that will last throughout retirement until the day you die, regardless of what age that happens.
Annuities are a form of insurance, then, and are used by many people throughout their retirement years.
Annuities: The Pros & Cons
Like most financial products, there are a number of pros and cons to consider before taking out an annuity agreement. Let’s take a look at both below.
First and foremost, the annuity arrangement means that your income is guaranteed for life. This means that you’ll have money entering your pocket even if you live for 20 or 30 years after the annuity payments start. This in itself is extremely reassuring.
Annuity agreements offer flexible options, including the choice between flat payments and increasing payments. The latter option gives you the best chance of staying ahead of inflation and increased living costs, resulting in the same level of buying power at all times, albeit starting at a lower initial income.
It is also possible to pay a lump sum and start taking monthly payments right away, or defer the payments until a later date (such as after you retire). Some of the agreements also allow you to defer payments to a loved one should you pass – albeit only or a set amount of time.
If you have health problems, you could receive a higher level of income. This is because of the provider will look at life expectancy
Annuities can be quite complex and difficult to understand. Nobody should take a financial product that they do not understand.
Annuities do not allow you to change the payment terms, even if your situation changes, which can tie you into financially suffocating agreements.
Annuity providers offer different rates of payments, so it is important to shop around. Depending on investment performance and longevity, an Annuity may not offer the best deal when it comes to the total income it pays out. When you (or your spouse if joint income is selected) dies the annuity dies with you.
Is An Annuity Agreement Right For You?
As with most financial products, there is no single right or wrong answer. As long as you consider what’s most important to you, finding the right option shouldn’t be too difficult. But if you do still require some help, our experts are only a call away.