An annuity is an agreement between a person and a company. In this form of investment, the person gives an amount of money to the company and in return, he/she will get the benefit of guaranteed monthly payout, mostly for the rest of his life. It is better for you to avoid annuities instead of buying a wrong one. The first thing that you should do is find out if the annuities work for you or not.
In the olden days, annuities were considered as a good investment option for everyone- especially as a method to purchase one’s own pension. Consequently, numerous people wrongly add it in their investment portfolios.
The investors who invest in annuities put themselves at risk by making all the investment in a single form of investment. In this case, the customers are burdened with numerous hidden fees on their life savings. Sometimes when the market falls, the monthly income of consumers that they earn from annuities also drops.
Due to these factors, many countries have regulated the annuities’s percentage that you can hold in your portfolio and for a genuine reason too. If you are planning to buy an annuity plan, then first thing which you should consider is evaluating the limit on the total investment.
The second thing that you must consider is the reason behind your investment; either you are investing money for investment purpose only or for securing cash flow for the rest of life.
Even though, annuities are often sold as an investment, but they shouldn’t be confused or compared with an investment plan. Even though an annuity acts like a good investment option, but that should not be the sole criteria of buying it. If you want to make an investment, then the market is full of options such as Ulips, mutual funds, stocks, etc.
Linking the stock market with the annuities is a costly and relatively unsafe method. You are paying money to the insurance company for investing in the stock market which are highly volatile in nature. It would be simpler if you do it on your own. If you are not perfect or do not have the required understanding, then you can take assistance professional experts in the field.
So when does an investment in annuities make sense? A person should buy an annuity only if he/she is not looking at having long term gains in the future.
In numerous cases, individuals buy annuities for securing fixed income based on possible earnings in future. However, your returns may not always remain the same.
So as you now aware about the annuities and its pros & cons, you can take a call whether they are the best option for you or not. If you are buying an annuity as a long term investment plan, then you should check other options as well. However, if you want to invest into something that can provide steady payment during the retirement phase, then annuity will be a good option for you. But do read through the fine prints on what all are being offered to you before you make a decision to go for annuity option.
