Why do people buy annuities?


Annuity ratesThere are many reasons people buy annuities, but the main intent is to provide retirement income. Money that is positioned into an annuity grows on a tax deferred basis and often can be turned into an income stream that will last for a person’s entire life. Fixed annuities and fixed indexed annuities also offer safety from fluctuations in the stock market.

As people age and become closer to retiring, some tend to become less concerned with achieving above average gains in investments that can have higher risk and more concerned with preserving their funds and getting a reasonable rate of return. Fixed annuities and fixed indexed annuities offer safety from market volatility.

Another important thing on retired people’s minds is cash flow planning. When a person retires they tend to become less concerned with the gains they achieve on their money and more concerned with the amount of money they can safely withdraw on a monthly basis without ever running out of money. An annuity can ease a retiree’s mind by providing monthly income that is guaranteed to never stop as long as a person lives1.

When used correctly, an annuity can be a very attractive retirement income planning tool. When used incorrectly, an annuity can limit a person’s access to their funds and cause financial hardship. For that reason it is important to consult an experienced and trusted insurance agent or financial adviser when structuring a retirement strategy using annuities.

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  1. Lifetime income received from annuitization or use of an income rider can have limitations. Taking liberties such as additional free withdrawals or surrenders can adversely affect lifetime income payments. It is important to make sure your insurance agent or financial advisor clearly explains the limitations on lifetime income payments.

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