Among the most common fears retirees face is running out of money in their golden years. We can’t really predict the amount of money we would need to enjoy the rest of our lives. This makes it difficult to figure out just how much money we should be setting aside for our retirement.

Many retirees make rash decisions and end up losing their hard-earned money instead. This includes being misinformed about annuity and falling into the trap of misguided annuity choices. In today’s video, Margaret discusses the many facets of annuity with financial expert Pam Krueger and retirement income planner Jessica Searcy.

An Annuity Is Essentially an Insurance Contract

Pam clarifies that annuity is not an investment. It is an insurance contract that you sign with an insurance company. It gives you the assurance that you have money left in case you outlive your retirement savings.

You either deposit some of your own savings then get paid back the rest of your life out of those savings, or, in other types of annuity, you get one that an insurance company sells like an investment.

Annuities Come in Different Types

There are different types of annuities. Some types of annuity function as a saving mechanism. You deposit a certain amount of money over a time frame, then pull money out of them once you have retired.

Other types are single premium immediate annuities. In here, you put a substantial amount into a fund and then you can get immediate withdrawals from it. This works well for those who have a 401K plan. Instead of getting the lump sum and self-regulating its distribution, they can choose to annuitize it and get a regular paycheck every month for life.

Great Annuities Exist

While there are hordes of confounding annuity plans available now, some great annuities do exist. For instance, annuities in Vanguard have very little fees and are very transparent.

Jessica mentions that a primary concern among those nearing their retirement age is the thought of potentially outliving their money. Many of them have conservative views, and so fixed annuities suit them best.

They can put a portion of their portfolio in an annuity plan to ensure that they will have this minimum amount of money for the rest of their life.

An Annuity Is Not an Investment

Pam reiterates that an annuity is not an investment. We must take caution every time the word “investment” is used alongside annuity. Some unscrupulous insurance companies and irresponsible salespeople make a pitch luring you to invest in annuity plans that are basically loaded up with riders and translate to hefty commissions.

Seeking Advice from an Impartial Expert Is Very Important

In choosing an annuity, it is crucial that you seek unbiased advice from trustworthy financial advisors. These advisors will give you the lowdown on the good, the bad, and the ugly aspects of annuities. They will not “sell” annuities but equip you instead with the right information to help you make an informed decision.

Take your time in choosing the right annuity that would work for you and your lifestyle. Do not rush into a decision lest you end up losing much of your hard-earned money.

Do you already have an annuity that works well for you? Have you fallen into a trap laid out by devious salespeople? Do you need help choosing an annuity? Share your thoughts below!