Annuity Investments: Pros and Cons

Annuity FAQ: Answers To Some Basic Annuity Investing Questions

How much should I invest in an annuity?

The amount of money that you invest in an annuity will depend largely on your capability to pay the premiums offered by the Insurance Company. Things to consider when putting money to an annuity include:

– Your future financial needs

– Type of investment portfolio

– Alternatives available

One of the most important thing to consider is your liquidity needs, especially at times when you really need cash to finance something like the birth of a child, an unforeseen accident or illness

And with liquidity needs, you must consider the penalties on early withdrawal if you are still in the surrender period of the annuity, Those penalties can be substantial. So it is necessary to understand your annuity’s features, benefits and contract requirements before you make a commitment. Ask you agent or CERTIFIED FINANCIAL PLANNER™ to fully explain the contract provisions before you sign and make your investment. It can be a difficult scenario if you find yourself in need of your funds and you withdrew a large amount from your annuity when the surrender penalties are significant on the contact you purchased.

What is a deferred annuity?

A deferred annuity pays out to investors interested in getting an income from an annuity. Generally, these investors want the payments to begin some time in the future, usually at retirement. They will have a choice as to how these future payments can be structured, either as equal payments over their lifetime or investment income. That is a discussion that should be planned ahead with your CERTIFIED FINANCIAL PLANNER™

Usually, the insurance company to invests the money over a number of years to increase the payments. Sometimes, it is invested in the markets, sometimes it earns a fixed rate of return. A tax deferred annuity allows income tax to be deferred until the money is withdrawn, and you can contribute as much money yearly as you like, with some exceptions.

The exceptions are if it is and IRA and if the Insurance Company sets a premium limit.

What is an immediate annuity?

An immediate annuity is an investment policy usually purchased from an insurance company. Immediate Annuities are sometimes known as Single Premium Immediate Annuities or SPIA’s Immediate annuities are commonly purchased with a lump sum and used as a retirement investment. In an immediate annuity, the investor begins to receive lump sum pay-outs anywhere from immediately to one year from the date of purchase. Generally, payments begin one month after investing in the annuity.

Immediate annuities can be fixed or variable. While a fixed immediate annuity payment depends on the amount you contributed, your age, as well as the interest rate at the time or purchase; a variable immediate annuity depends on the type of investment purchased.

There are a variety of different options available to you when purchasing an immediate annuity. You can decide whether you would like a set period of payments or a lifetime of payments. You can also decide on whether the payments are solely for the person who holds the policy or also for a secondary person, such as a spouse.

What are the advantages of annuities?

There are three principal advantages to an annuity:

1. Tax-deferred accumulation. This allows you to set aside the funds that you pay into the annuity for as long as you want, without worrying about exceeding federal tax limits. For a non-IRA annuity only.

2. Flexibility. An annuity can offer you a variable or a fixed return, unencumbered by federal tax limitations.

3. Security. An annuity offers a fixed-income payout option which would grant an income that cannot be outlived.

How will I receive my annuity payments?

There are several pay-out methods available when you begin receiving annuity payments. With some options, you or your beneficiaries can select how you want to be paid. The following are some of these:

You can get income for your entire lifetime even when the money in your annuity account has been used up. This is advantageous if you live to an advanced age because it will maximize the income that you will receive. However, there is a risk involved: when you die, all the money cannot be claimed, even by your assigned beneficiaries. If you die young, you simply lose this money.

Another is the joint and survivor annuity where it pays you during your lifetime, and after your death your beneficiary (usually your spouse) will also be paid during his or her lifetime.

You can also refund your annuity, meaning you’re gaining income for life. However, when you die, the portion if the income payments that you have not collected will be the only amount that your beneficiary receives.


Annuities are one of the best investments for your retirement. Fixed Index Annuities are my personal favorite recommendation that I like to present to my clients when it is appropriate. All annuities offer features and benefits that offer a wide range of payout options with the opportunity to create a “Personal Pension” and guarantee a lifetime stream of income. Please contact us and we can help you choose the right annuity for you!

As always, if you have any comments or questions please leave them below and I will respond as soon as possible.




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