Understand More About Whether an Annuity May Be Right for You
Advantages and Disadvantages of an Annuity
Annuities are a type of insurance contract that make regular payments to you either immediately, or at some point in the future. There are various types of annuities, each of which offers their own set of advantages and disadvantages. Our team of financial advisors at Big Sky Financial Group is here to help you understand more about annuities.
Disadvantage: Not Protected
Depending on the type of annuity you choose, as well as state laws for your specific state, it may not be protected from creditors. This means that you may be at risk if a judgement is made against you in a legal case. If this happens, creditors can take some of your income or assets — in this case your annuity — to pay back the money you owe.
Advantage: Tax Paid
One of the biggest advantages of annuities is their tax-deferred status, which means that you don’t owe any taxes on your annuity until you withdraw funds. With other types of retirement investments, you have to pay taxes when they reach the maturity date, but you avoid that with annuities. Leaving money in a deferred annuity can help ensure you reduce Social Security taxes as well.
Disadvantage: Potentially Hefty Fees
One of the biggest disadvantages to annuities is that they have many associated fees and costs compared to investments such as CDs or mutual funds. Many annuities are sold through agents, which means you pay their commission through a fairly hefty upfront sales charge. However, buying directly sold products straight from the insurer can help you get around these fees.
Advantage: Income for Life
Annuities are so compelling because they typically provide income that you can’t outlive. For most traditional investments, this is not the case except in extreme circumstances, so annuities offer something to supplement income stress-free.
Annuities can offer many benefits, yet as with any investment, they have their downsides. If you’re unsure whether an annuity may be right for you, reach out to our team at Big Sky Financial Group. Our financial advisors can examine your financial situation to determine the right choice for you. Reach out to us today!