Should Your Retirement Plan Include Annuities?

One of the main advantages of an annuity is that your money grows tax free. One of the advantages of a retirement plan is that your money grows tax free. So why would anyone put a tax free investment into a tax free investment? In certain situations, it is the right financial move. Let’s compare the advantages and disadvantages and let you decide what works best for you.

Advantages Of Annuities In Retirement Plans

Guaranteed Income For Life

An annuity will provide you a guaranteed income; a retirement plan without an annuity cannot offer guaranteed income. If set the annuity up properly it can provide you guaranteed income for the rest of your life. That is an invaluable benefit.

The Protection

In addition to a tax-deferred investment opportunity an annuity offers a death benefit. With most annuity products your beneficiaries will receive at least your initial investment if you die before starting withdrawals. A retirement plan will only offer them the market value at the time of your death even if that value is less than your initial investment amount. If you are concerned about market volatility an annuity can help ease that concern.

Disadvantages Of Annuities In Retirement Plans

retirement annuities



Yes, the fees of an annuity can get expensive; if your fees exceed your rate of return than an annuity is the wrong investment vehicle for you. The fees can include an annual maintenance fee, surrender charges if you close out the annuity too early and an insurance fee to cover the death benefit options.

Time Frame

Unless you buy an immediate annuity you will be required to invest your money for years to make the investment worthwhile. To avoid the surrender charge or fee for early withdrawal your investment would have to be in place for up to 7 years. If you are close to retirement you may consider an immediate annuity; this type of annuity does not have a surrender charge.

Annuities included in retirement plans can get a bad rap from financial professionals who do not feel the advantages outweigh the disadvantages. With the information we have provided you can now challenge their advice to your benefit.