Annuities bring peace of mind, help people diversify their retirement income, and prevent people from outliving their assets.
However, they also have some downsides. Annuities can be complex, expensive, illiquid, and may not deliver you the best return on your money. As with other types of insurance products though, many people are willing to accept these downsides in exchange for peace of mind and the assurance that they won’t run out of money later in life.
Factors to consider
Whether or not an annuity is right for you will depend on a number of different factors, including your risk tolerance, desired level of financial security, health, and other retirement income sources.
An annuity may be appropriate for you if:
- Your nest egg may not last you through retirement and that is a worrying thought to you
- You are worried you may have difficulty sticking to an appropriate withdrawal rate during retirement
- Peace of mind is very important to you; you want the assurance that you won’t run out of money.
Annuity rates will vary by company, so obtain quotes from a number of different companies. Shopping around can help you find the best deal possible on your annuity, potentially earning yourself thousands of dollars more than you otherwise would.
For additional annuity information, see our Annuity articles in the Personal Finance section of the site.