Are annuities a good retirement investment?
My spouse and I are 70 and 67 years old and retired. We have a fixed and variable annuity. Is this a good investment for monthly income? We sometimes need extra income for home maintenance.
With your limited information this is a difficult question to answer. After being in the financial services business for over 25 years and knowing what I know now, I personally am no longer a fan of annuities because of all the stipulations they have and high expenses. Most annuities seem to benefit the insurance company and sales representative more than they do the person buying them creating a conflict of interest. But, since you are already in annuities and could have a large surrender penalty if you wanted to get out of them, without knowing if they have a guaranteed income benefit, they may or may not be a good investment option for monthly income. Bottom line is: your question is one that can only be answered correctly by a financial advisor that better understands your entire financial picture. My suggestion is you find a fee only based advisor that does not sell annuities as one of their only options for retirement income. They are out there but the temptation is so great for the high commissions annuities offer, you have to seek out a fee based advisor and then ask them how they feel about annuities.
This answer is intended for informational purposes only and is not intended to provide specific tax, legal, or investment advice. I invite you to schedule a meeting with a me for more information regarding your specific situation.
Regardless it’s fixed or variable, the primary purpose of an annuity is to provide a lifetime income. Others may use it as an investment tool to minimize the annual taxation. In your case, if you find after adding all the annuity income, pension (if you have one), and social security income still can’t cover the occasional contingencies, such as the house maintenance cost, you may want to dip into other savings, whether it’s a checking account or an IRA account. Last but not least, if the bills getting too much and you don’t plan to leave the home, a reverse mortgage may be an option too. Make sure you check out with a CFP® or RICP® first. Best!
Most annuities are not good investments, whether for monthly income or otherwise. Why? Because the ongoing expenses, often in the 1.00% to 1.50% range and higher, eat away at the returns that are generated along the way. With a fixed annuity, there are guaranteed monthly payments that usually continue as long as you live. But the trade-off is that you must transfer funds to the insurance company and shoulder the risk that you will not live long enough to make the arrangement worthwhile. In the case of variable annuities, however, the funds remain yours. Later on, you may choose to annuitize them or withdraw them as a lump sum.
Typically, annuities are bought by folks who have exhausted others ways of deferring taxes. Taxes are due when funds are withdrawn. The downside is that withdrawals are taxed at ordinary income rates. In the absence of a need to defer taxes, you would be better served by buying several widely diversified equity and fixed-income funds and setting up a systematic withdrawal plan to meet your monthly needs.
This depends on your situation and with whom you talk to. If you want the "guarantee" then yes. If you want to pay for the extra riders and the income/death benefit they offer, then yes. I personally do not sell annuities. (I'm not saying anything negative about those who do, either.) I am a stock and bond guy. I believe the market is efficient to a degree and believe that you can receive the 5% in income based on dividends and gains on the market. With that being said, it never hurts to diversify to a few annuities to get your "guarantee". The insurance companies are highly insured themselves and have a lot of liquidity and experience in this market. If it helps you sleep at night to have that fixed amount coming in everything month, then yes. If you can withstand the ups and downs of the market, then I say no, you don't "need" an annuity. Annuities can be very expensive and will cost you more in the long term.
I hope this helps.
If you have not officially "annuitized" your annuities then you do have the ability to take out funds as you need them. Generally annuity owners "annuitize" their accounts and trade the value of the annuity for guaranteed lifetime monthly payments. This means you cannot withdraw more money than what you are getting monthly. Prior to officially annuitizing however you have access to your funds however and whenever you want them. If you need funds for home maintenance you should plan on having your monthly income exceed your needs so you can put aside funds for maintenance. Annuities can be a good part of a retirement plan but should not be your entire plan given their inflexibility.