Why Annuities Are Bad

By investing in an annuity you are incurring a counter party risk which we talked about at length in the past.

Why annuities are bad. Fixed rate annuities create an even bigger risk because of increased cost of living and inflation. Annuities often are sold on fear. If you take two investment accounts with the same assets and one is taxable and one is tax-deferred the tax-deferred account will always do better because it is.

Many people who are selling fixed index and variable annuities as a fix-all solution for retirement income either dont fully understand what they are selling or are using smarmy sales tactics to make money. Unless your lifetime is five years thats how long it took the market to make a full recovery after the Great. The disadvantages of annuities depend on the type of annuity.

Ive often asked myself the same question and heres what I believe to be the disheartening answer. The first thing to realize about Annuities is as stated in my second paragraph they are a contract. Income taxes apply to your annuity payments once you start receiving them.

If the money formerly was after-tax dollars the heir receives no step-up. Insurance companies sell annuities as a way to provide a guaranteed retirement income to people who dont have a traditional pension plan. If annuities arent appropriate for most people why do so many people keep buying them.

Youll be swapping lower capital gains tax rates on taxable income to. Why annuities are a bad idea for almost everyone. If you use it properly its a great tool.

Annuities are such terrible investments that the minute the government passed a law specifying that financial professionals had to act in their clients best interest annuity sales fell off a. You dont get any of the market dividends which can comprise a. They label income annuities as an investment rather than as a guaranteed way to fund spending in retirement as a way to manage the risk of running out of money in retirement which is.