Pros and Cons of Annuities

Just because they are so popular with insurance companies these days, I’ll briefly cover annuities as well. These are considered an ‘upper-level’ investment, so I hesitate to mention them here. Luckily, their premise is very straight-forward: An investment that has an absolute guarantee!

What are annuities?

Annuities are the result of insuring a fund to prosper. An insurance company, such a Metlife, New York life, or Hartford, will set up it’s own fund in-house and guarantee it to grow. It is absolutely guaranteed to raise 5% or more during its lifetime, (or more, depending on the company) pays you income as often as you'd like, can sometimes be passed on after your death, and best of all, you'll only have to pay a fee if the fund is very profitable. It sounds great on the front end, I must admit.

Of course you know by now that nothing is that easy, right? And since when have you ever heard of an insurance company giving away its money?

To counterbalance this desirably insured fund, insurance companies have thrown in an Achilles heel that most investors just can’t live with, once they know about it, that is. Namely, a big, fat wait, and no lump-sum payouts! There are no annuities that aren’t locked in for at least 10 years, and no annuities we’ve ever heard of that would give you the whole investment back at any one point without charging you horrendous fees. You can’t even transfer ownership during that time, (except if you die) so you might want to be in good health and have lots of time to wait for any payout.

If that sounds acceptable to you though, there’s nothing inherently wrong with annuities, however most would rather invest my money with a world-class bank than just an insurance company… Who do you think is more likely to invest it wiser? And why then settle for a guaranteed 5% when what you really want is 50% or better? Also, most would like to have an investment that they can withdraw completely if they had an emergency… Doing that to an annuity would most likely cut it in half, depending on your terms.

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