Annuities can be very important financial tools, but are they right for everyone? For sure not! Annuities have been around for a long time and are an important tax and income planning tool and can be very helpful when used correctly.   Annuities certainly weren’t designed to be sold as a solution to everyone’s financial woes.

 

There are primarily two types of annuities: Fixed and Variable. 

 

     I like Fixed Annuities, for the right individual, although there are certain companies that I would recommend steering clear of.  In general, Fixed Annuities have a great track record of safety and protecting the account holders’ investment.  There are two types of fixed annuities, one where you earn a fixed rate of interest, similar to how a bank CD earns interest and another type of fixed annuity where you earn interest based on a stock market index such as the S&P 500 or the Dow Jones Industrial Average (DJIA).  This type of fixed annuity is often referred to as Fixed Indexed Annuity or Fixed Linked Rate Annuity.  These Fixed Indexed/Linked Annuities provide the account holder with the potential to earn a little more interest than bank CD's and other "safe" investments.  Linked or Indexed Annuities may be most appropriate for retirees, individuals that cannot afford to risk losing money in the stock market, or those that want the opportunity to earn a little extra interest from the market but cannot stand the thought of losing any money.   Index annuities may be a good alternative to bank Cd's in todays low rate environment but not all fixed annuities are created equal and there are a few companies out there selling inferior products. When choosing an Annuity, fixed or otherwise, always work with a financial professional that understands the accounts and will watch out for your best interests.

 

Now, let’s talk about variable annuities.   Variable annuities are risk bearing accounts where the funds are invested in the stock-market. They give the account holder the benefits of investing in the stock-market as well as ALL of the risks. A variable annuity can loose money when the market goes down so if you do not want to take any risks with your hard earned money, a variable annuity may not be a good investment for you.    Additionally, variable annuities charge commissions for the account much in the same way a mutual fund does.   Because variable annuities can carry very high commissions, I recommend that if you own a variable annuity take the time to get it evaluated by someone other than the advisor that sold it to you. Variable annuities, like all investments, have a purpose and when used properly, can be beneficial for the right investor.   Unfortunately, I have seen many instances where the account holder did not fully understand their account and, after taking the time to research it, found that it may not have been the best choice of investments for them.  

 

Annuities serve a specific purpose and they can be very important and valuable tools for the right individuals.  The most important thing with any financial account, annuities or otherwise, is to take the time and learn if it is right for you.  If you are thinking about purchasing an annuity make sure the term is acceptable for your situation.  If you would like additional information to help you determine if an annuity may be right for your particular situation, please give us a call. We can also provide you with a Free report listing the currently available Fixed/Fixed Index Annuities, their features and terms as well as the rating of the companies that are offering these accounts.  Call us to request your FREE Annuity Buyers' Guide.