Annuity Do's and Don'ts for Retirement Planning

• Don't: Consider a variable annuity.
• Do: Eliminate volatility.
• Do: Educate yourself on the difference between variable, fixed, and fixed indexed annuities.
• Don't: Assume CDs or Money Markets are the only safe place for retirement funds.
• Do: Make a game plan.

You should not buy an annuity if Social Security or pension benefits cover all of your regular expenses, you're in below average health, or you are seeking high risk in your investments.

Annuities are considered poor investments for many reasons. Depending on the annuity, these include a variety of high fees, little to no interest earned, inability to keep up with inflation, and limited liquidity.

An annuity typically isn't the best investment if you're just using it to retire on its own. However, in specific instances, it may be a great addition to your overall retirement plan. For example, if you've already maxed out your other retirement account options, an annuity can provide another option.

Annuities offer guaranteed income, the potential for higher returns, and tax-deferred growth but can also have high fees, limited liquidity, investment risk, surrender charges, and reduced control. Understanding the terms and weighing the pros and cons before deciding is essential.

One of the most important benefits of the annuity is the ability to use the value built up during the accumulation period to provide a lump sum payment or to make income payments during the payout period. Income payments are usually made monthly, but you may choose to receive them less often.

Income annuities and fixed annuities are among the safest financial solutions available.

However, there are several types of annuities, and not all are right for everyone. One type of annuity you should avoid is a single-premium immediate annuity (SPIA). With an immediate annuity, you annuitize your savings, which means converting your savings into a stream of payments that cannot be reversed.

Some annuity contracts, typically some fixed annuities and indexed annuities, offer guaranteed rates of return. While your rate of return on these annuities can be higher than the minimum, it's nice to know there is a floor on the rate of return, too. However, sometimes this floor can be a loss instead of a gain.

The primary benefits of buying an annuity include principal protection, the potential for guaranteed lifetime income and the option to leave money to your beneficiaries. Some annuities may also be optimized to help pay for long-term care.

Annuities are safe investments, provided you work with a reputable insurance company. As long as you're confident in the financial soundness of the insurance company selling you the investment, you are guaranteed to get at least your principal back, depending on the type of annuity you purchase.

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