What You Should Know Before Investing in Annuities

What You Should Know Before Investing in Annuities

(MoneyHippo.com) – While trying to grow your wealth, you may be looking at different ways to invest your money. Perhaps someone suggested investing in an annuity. Although there are a few types of annuities, the general idea is that you make an agreement with an insurance company that requires them to make fixed payments to you. Of course, you have to deposit money into the annuity first during the accumulation phase to receive money back.

Many look to annuities to manage their retirement by arranging it to pay regularly, similar to when they had a job. However, you can also choose to receive your money and earnings in one lump sum.

As with most investments, there are pros and cons. On the positive side, annuities may give you a sense of comfort, knowing you will receive regular payments in the future at either a set or variable interest rate. However, you need to be sure the insurance company will be around during the payout phase and not simply during the accumulation phase. Unlike a bank, the FDIC does not insure the money you put into an annuity, so choose wisely.

Be sure the person or entity selling you an annuity is registered to do so by checking here.

On the negative side, annuities are long-term investments that often have several service fees attached and will penalize you for withdrawing the money early. 

The truth is that annuities have no more real benefit than investing in a retirement fund like a Roth IRA or 401(k). Thoroughly read any contracts before signing, only agreeing if the annuity terms align with your future financial goals.

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