is an annuity really a good investment or a or a bad idea to retire on?

Answer 1

Generally, they are not so good as investments because of the high costs associated with them. But they can provide you with a reliable income stream once you are retired. Investing in or buying one also depends on what other income sources and investments you have.

Consulting with a reliable financial consultant would be a good idea.

Answer 2

An annuity can be a good investment vehicle for you depending on what you are trying to accomplish.

There are basically three kinds of annuities. A fixed annuity works much like a CD, you get a guaranteed interest rate for a period of time. Then the rate renews at a new interest level for another fixed period. One advantage of the annuity over the CD is that the interest is tax deferred until taken out.

Another type of annuity is called the variable annuity. It works much like a 401k plan in that you have a variety of investment options to invest in and you can move your money between these various "subaccounts". Some of the recent ones will even guarantee that you cannot lose your money invested in the annuity no matter what type of performance you get from your various subaccounts.

The third type is called an equity indexed annuity. This type will provide you with a guaranteed interest rate but also allow you to participate in some of the gains of the stock market. They typically will let you get somewhere between 50-100% of the movement of the S&P 500 but may have a cap on the amount such as 12% or so. So if the market goes up 30%, you get 12%.
But they do provide downside protection so that if the market goes down 30%, you will get a 0% return.

And of course all the annuities have numerous ways of taking the money out of them as income streams.

Answer 3

Depending on purpose and the individual's circumstances annuities make an excellent part of an individual's investment portfolio.

The variable deferred annuity and variable immediate annuity are the best forms for investment purposes.
.
Deferred annuities are for the working person investing for retirement. Immediate annuities for the retired person seeking a source of income with potential to grow .

The variable annuity is invested in a portfolio of investments in the same way as a mutual fund. It has 2 advantages over the mutual fund.
1. taxes are deferred on the inside build up in the fund. I.e. the annual earnings of the investments in the fund. The tax savings are reinvested and increase the accumulation in the fund. The tax is deferred only, so it is payable if the annuity is cashed early or on retirement. The longer the deferral the greater the advantage.

2. Because the deferred annuity is planning for retirement plus the tax charge if it is cashed early, these funds are not subject to the cash flow volatility so common in mutual funds, outflows in bad markets, inflows in good markets. The investment manager has a continuous positive cash flow and is not forced to sell in bad markets and invest heavily in bull markets. Under the same investment manager the annuity does better [dollar averaging versus buy high, sell low]
Variable annuities and mutual funds both enjoy the advantages of professional investment mangement and diversity of investment.

The disadvantage of the annuity is that the management charges are higher than for a mutual fund.

The variable immediate annuity provides a retired individual with professionally managed funds that create retirement income increases as stock market returns grow. This is an excellent offset for inflation. A caution: while long term income will grow it will decrease from time to time in bad market conditions. It is not a replacement for fixed retirement income but an excellent addition.

Answer 4

The only plus about the annuity is that you will get a set amount for the rest of your life. The amount that is remaining after you are dead returns to the company unless you set it up to pay your spouse after death. It can not be passed on to your children or to anyone else after the beneficiary dies. A lot of companies use this as their bread and butter for making money. It would be better to have a 401(k) or an IRA where you have more control over your money and can give it to love ones after death.

Answer 5

you should max out your other retirement options (roth IRA, qualified plan at work) first, as the administrative and management costs of an annuity are much higher.

Answer 6

Call your local State Farm Agent! They ROCK! :)