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Is an Annuity Right for Me?

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Buying Decision

Annuities are not for everyone, but for the right investor, an annuity can be the perfect complement to a well-rounded portfolio.

First things first: You should only consider purchasing an annuity when your other retirement investments, such as IRAs or 401(k) plans, will be fully funded for the year. These should take precedence as they occur before income tax and are essential in securing your finances in retirement.

If you have additional funds left over after maxing out on your retirement plans, an annuity can be a good place to invest your money. You can add an unlimited amount to an annuity, which grows tax-free until you make withdrawals. This is especially useful to those in higher income tax brackets today.

It’s important to understand the features, limitations and disadvantages of an annuity. Typically, you’ll need to compare an annuity with other similar investments such as mutual funds in order to determine whether buying an annuity is the better choice.

A good determining factor is whether you’re willing to leave your funds in the annuity for several years before making withdrawals. Usually, withdrawing funds within the first five to seven years will generate surrender charges of up to 7% of your investment.

Whether an annuity is right for you depends a lot on your particular financial situation. It’s recommended to speak with a financial advisor to go over your current and future plans, and to be thorough in asking your insurance agent regarding fees and details.


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