Annuities aren’t the right move for everyone, and financial planners have a few reasons why.

Annuities are contracts with an insurance company that guarantee income in retirement.
But, high fees and low returns can offset the benefits, financial planners say.
You may be able to make more money investing on your own, according to experts.
Vanguard Personal Advisor Services

Annuities aren’t all bad. But, they might not be the right move for everyone, either.

Annuities are contracts with insurance companies that can provide guaranteed income in retirement. There are several types, including fixed, indexed, and variable annuities. While they can be the right move for some people who need help budgeting their retirement income, or feel uncertain about their financial future, they aren’t the right move for everyone.

Financial planner Brian Walsh of SoFi said that there are upsides and downsides to these financial products. “Annuities are like anything else with personal finance, where they can have a place to be used appropriately. But unfortunately, a lot of times, they are used inappropriately,” he said.

There are a few reasons financial planners caution their clients about annuities.

Financial planners don’t like them for the fees involved

Annuities aren’t free – you’ll pay someone to manage the money put into them. And that work comes with a cost.

It’s something financial planner John Bovard of Incline Wealth says he cautions clients about. “You’re paying a financial advisor their fees on the annuities, and you’re also paying an actuary fee for them to do basically those time value of money calculations and life expectancy calculations. You have there at least three to four layers of fees that are involved with annuities,” said Bovard.

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These fees can vary based on the annuity you choose, but there will be several fees attached. There’s also generally a penalty for withdrawals before age 59 and a half.

Walsh said that the fees can sometimes eat up any growth. “Generally speaking, annuities come with very high expenses and fees that, especially if you’re using them to save money, will really add up over a long period of time and offset any of the potential benefits,” he told Insider.

They won’t earn the same returns as investing yourself could

Financial planners say you’re not going to grow your wealth much by putting money into an annuity.

“I equate them almost to like a checking account at a bank,” said financial planner Jovan Johnson of Piece of Wealth Planning. “You’re not going to get this crazy rate of return.” Instead, they’re more about guaranteed income and security.

The average stock market return is about 9.2% over the past 10 years, according to Goldman Sachs data. How much you’ll get from an annuity will depend on several factors, though it is guaranteed not to drop in value.

“I think it’s good for people that need that structure, and they’re …read more

Source:: Business Insider

      

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