пятница, 27 декабря 2019 г.

New Changes Mean More Incentive for Annuities, But Is That a Good Thing for Investors?

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With the recent changes Congress made to retirement savings laws, more firms today will be able to market annuities to those enrolled in workplace retirement programs. Insurance companies lobbied hard for those provisions, hoping to capture a piece of the trillions of dollars Americans have invested through workplace 401(k) and retirement savings plans. But while annuities are often touted as a great source of retirement income, are they actually beneficial to most investors?

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What Are Annuities?

Annuities are contracts between individuals and insurance companies in which the individual makes a lump sum payment or series of payments to the insurance company, in return for regular payments that either begin immediately or at some point in the future. They are often advertised as a steady and consistent source of income for those in or entering into retirement.

Annuities can be structured in many different ways and tailored to the individual requirements of particular investors. For investors who are knowledgeable about annuities and who can navigate the potential complexities of annuities, that can make them a beneficial source of retirement income. But many investors don’t understand the complexities of annuities, especially the potential tax consequences that come with annuity income, and they put themselves at risk of making bad financial decisions.

Negatives and Positives of Annuities

It doesn’t help that annuities are sold by insurance salesmen who receive commissions from the sale of annuities, and who thus have an incentive to sell as many annuities as possible. Too many retirees have placed their trust in these salesmen, assuming that they’re looking out for their best financial interest, only to find out too late that they sank their money into an investment that doesn’t do enough for them.

There are some investors who can benefit from annuities, such as those investors who don’t think that they’ll have to discipline to keep from dipping into their retirement savings, or those who don’t want to do their homework before investing in stocks, bonds, mutual funds, or other forms of investment. But for many investors there are far better options than investing in an annuity.

It’s worth mentioning here that before you decide to invest in an annuity, as with any other investment, you should consult with your financial adviser and tax adviser to determine the financial impact and tax consequences of your investment. Given the low annual return of annuities, and the potential for having to pay taxes on annuity income at ordinary income tax rates, consulting with financial and tax advisers needs to be on your to-do list.

Another drawback to annuities is that once you enter into the contract, your money is often locked up for years. If you seek to withdraw some of your money early, or if you realize that the annuity isn’t performing as you thought it would, you’ll have to pay a penalty to get your money back.

Many annuities also charge high fees aside from those penalty fees. From commissions to management fees to administrative fees, annuities often have some of the highest fees in the investment industry, which can really eat into your retirement income.

Annuities are also not guaranteed against loss, which may come as a surprise to many investors. Annuities are often favored by many risk-averse investors due to their supposedly “guaranteed” nature. But if the insurance company you contract with goes out of business, you could lose all of your money. That’s another thing you’ll want to discuss with your financial adviser.

Gold vs. Annuities

Fortunately for risk-averse investors there’s another solution to the problem of income in retirement: investing in gold. While the gold price fluctuates just like any other market asset, its long-term trend is ever upward. In fact, since the gold window closed in 1971, gold’s average annualized returns have been better than stock markets. That makes gold not just a good hedge against financial crisis, but also a good way to grow your wealth over the long term.

With a gold IRA, investors can even roll over or transfer funds from existing retirement accounts into a new gold IRA, allowing them to continue the same tax advantages of their existing retirement savings while benefiting from the wealth-protecting abilities of gold. That makes investing in gold a great choice for those looking to safeguard existing retirement savings.

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Investors need to be aware of the full range of investment opportunities available to them and keep an open mind to alternatives. They especially need to remind themselves not to put all their eggs in one basket. While annuities, like any other investment, can form a part of a well-diversified investment portfolio, the many drawbacks to annuities means that investors shouldn’t rely on them for the entirety of their retirement income. And investors should also remain open to options such as investing in gold, which offers a useful hedge against the potential losses that come when investing in financial assets.

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