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What are the Benefits vs Risks of Investing in Annuities?
An annuity is considered to be a good option as it offers regular payments, tax benefits and a potential death benefit. The most basic feature of an annuity is the individual gets an opportunity to tap regular payments in the form of supplemental income from an insurance company during the retirement. This will help the individuals that have not saved enough to cover their normal expenses.
Further, the money that individuals contribute to an annuity is tax-deferred, which means the individuals do not need to pay taxes on the money until the individual starts receiving the payments.
Annuities somewhat guarantee returns in terms of safeguarding retirement related financial requirements.
Meanwhile, there is a certain level of risk involved when individuals invest their money. The individuals get fixed annuities guarantee on a certain percentage of the individual’s principal (original) investment, which is generally quite low.
Moreover, variable annuities carry more risks because of the probability for an individual to actually lose the money, depending on the fund’s performance. However, variable annuities offer an extra benefit, which is a death benefit.
Besides, the annuities have illiquid nature. Once the individual has contributed the money to fund an annuity, he cannot get it back or even pass it on to a beneficiary. It could only be possible if the individual has opted for another annuity plan, however, this could involve fees attached to it. Further, the benefits will disappear when an individual die.
Besides, annuities generally involve high fees like administrative fees, mortality and expense fees associated with annuities, which makes the annuity products among the most expensive investment products available in the market. Insurance companies charge these fees, in order to cover the costs and risks of insuring the individual’s money.
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