The world of finance has a number of “four-letter words” that people consider dirty. Among them:

Debt
Loss
Risk
Loan

But here we want to focus on another word—a longer word—used in financial planning that some people regard as especially bad. It’s the word “annuity.”

Why do so many feel this way? And should they? Are annuities a bad idea? Or, are they a smart, conservative option for some people?

Annuities Defined

One definition of annuity is “a payment for the rest of your life.” Some federal employees, when talking about their pensions, will say, “I have an annuity.”

Another definition of annuity could be “a bucket of assets that you have set aside in a conservative manner.” This would be an accumulation of assets that aren’t at any risk of loss due to stock market exposure.

Here, we’re going to be talking about that second kind—not the “income for the rest of your life” type of an annuity that federal employees have. Usually, people that have a pension, and Social Security, and a spouse’s Social Security, aren’t looking for another guaranteed check for the rest of their life. They’re looking for a safer investment of their other assets.

So, we’re going to look at the kind of annuity that is essentially an accumulation of assets invested conservatively. And we’ll try to answer the question “is that something you need in your portfolio?”

If you don’t have a financial advisor to help you understand annuities or other financial and retirement questions, our team at Christy Capital would love to help.

Visit our website.

In the upper right-hand corner, you’ll see a button that says Talk with an Advisor.

Click there, and you’ll be able to send us a quick email message. Someone will be in contact with you promptly.

Or, if you’d like to talk right now with someone, our number is (866) 331-7749. Give us a call.

We want to help you have the best retirement possible!

The information provided is not intended as tax or legal advice. Figures shown are for illustrative purposes only furthermore, the information nor the illustrations provided may not be used to avoid any tax penalties. This content represents the general views of Christy Capital Management and should not be regarded as personalized investment advice Nothing herein is intended to be a recommendation. The opinions expressed are subject to change without notice. Retirement Benefits Institute, Inc., and a portion of its contents merged with Christy Capital Management Inc. Brandon Christy, former President of Retirement Benefits Institute, is also the current President of Christy Capital Management, Inc, a registered investment adviser….(read more)

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Is Annuity a Bad Word? What are My Conservative Investment Options for Retirement?

When planning for retirement, it’s only natural to strive for financial security and peace of mind. As such, it’s crucial to consider conservative investment options that can provide a reliable income stream after you leave the workforce. One such option is an annuity. However, there are ongoing debates surrounding the effectiveness and suitability of annuities for every individual’s retirement needs. So, is annuity really a bad word? Let’s delve into the topic and explore the conservative investment alternatives available.

Firstly, we need to understand what an annuity is. An annuity is essentially a contract with an insurance company, where you invest a lump sum or make periodic payments in exchange for regular income during retirement. This can be for a specified period or for the rest of your life. Some annuities also offer additional features, such as death benefits or inflation protection.

Now, let’s address the main concern – is annuity a bad word? The answer is not as straightforward as a simple yes or no. Annuities have both advantages and disadvantages, making them a suitable choice for some individuals while unsuitable for others.

On the positive side, annuities offer a guaranteed income stream, which can bring peace of mind during retirement. This income can serve as a supplement to Social Security or pension payments, creating a stable financial foundation. Moreover, annuities can provide a hedge against longevity risk, ensuring that you won’t outlive your savings. For those seeking stability and certainty, annuities can be a valuable option.

On the other hand, annuities also have a few drawbacks. One prominent concern is the lack of liquidity. Once you commit to an annuity, it can be challenging to access your funds without facing penalties or surrender charges. Additionally, annuities may have high fees and commissions, reducing the overall return on your investment. Furthermore, the annuity market can be complex, with various types of annuities, riders, and options to consider. This complexity can make it daunting to select the most suitable annuity for your needs.

Considering the pros and cons of annuities, it is important to explore alternative conservative investment options for retirement. Here are a few suggestions:

1. Bonds and Fixed-Income Securities: Investments in Treasury bonds, corporate bonds, or other fixed-income securities provide steady income and relatively lower risk. These options can offer stability while preserving your capital.

2. Certificates of Deposit (CDs): CDs are low-risk investments offered by banks. They allow you to deposit a fixed amount for a specified period at a guaranteed interest rate. CDs are known for their low volatility and offer a higher yield than regular savings accounts.

3. Dividend Stocks: Dividend-paying stocks provide income through regular dividends. Investing in established companies with a history of stable dividends can offer a conservative approach to generating retirement income.

4. Real Estate Investment Trusts (REITs): REITs are investment vehicles that allow you to invest in real estate, such as commercial properties or rental properties without directly owning them. Investing in REITs can provide a regular income stream and diversify your portfolio.

5. Conservative Mutual Funds: These funds primarily invest in income-generating assets like bonds and blue-chip dividend stocks. Conservative mutual funds aim to provide income and stability while reducing risk through diversification.

Ultimately, the decision regarding annuities or other investment options for retirement hinges on your specific financial situation, goals, and risk tolerance. It is advisable to consult with a financial advisor who can assess your needs and provide guidance tailored to your circumstances.

In conclusion, annuities are not inherently bad, but they may not be ideal for everyone. They provide guaranteed income but come with limitations and potential costs. Considering alternative conservative investment options, such as bonds, CDs, dividend stocks, REITs, or conservative mutual funds, can also offer stable income streams for your retirement years. Understanding your preferences, evaluating the pros and cons, and seeking professional advice will help you make an informed decision that aligns with your financial goals and aspirations.