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.

Retirement, Investing, Annuities, Real Estate
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1 week ago
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Fixed and Variable annuities sound like "deferred annuities". An immediate annuity is what many people use to provide monthly income. I wouldn't call any annuity an "investment", but rather a product. 

The types of annuities you currently have (fixed and variable) are structured more like an investment - with much higher costs than typical vehicles like mutual funds and ETFs. You can access the money when you need it, and it should provide you with some level of return on your money over time - so you can begin to take a monthly withdrawal to use like income, and then are also able to dip into it for home maintenance or other costs at times.

An immediate annuity effectively has you hand over your principal to an insurance company for the promise of lifetime income. The money is no longer yours, and you are in a contract that pays you a stated amount for life (or some term). This is an insurance product, definitely not an investment. Your principal is not available to dip into, and your heirs or favorite charities will not get what's left when you die - the insurance company will. 

For a 67 and 70 year old, when you buy an immediate annuity, or "annuitize" your variable or fixed annuities, they'll likely pay you around 8% per year of the principal. But that 8% is not a "return on your money", but rather a "return of your money" for the first 12 years (8%*12=96%). 

I think if you like that idea, then it's a good idea. Often people don't understand the trade-offs of annuitizing or buying an immediate annuity. 

I have a preference toward investing in a low-cost, diversified investment portfolio, and generating yield that I can use as income, and price appreciation that I can scrape off the top of my principal for things like home maintenance. Another good strategy is annuitizing enough of your money to get your basic monthly expenses covered, and then investing the difference for extra income, and for larger items like a new roof some day. 

I hope that helps identify the good and bad of annuities as retirement income solutions. 

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