Jordyn Bradley at Forbes Advisor wrote an explainer on annuities: fixed, variable and indexed contracts that turn a lump sum into income, with tax-deferred growth, no IRS contribution limit on non-qualified contracts and riders that customize the terms. Forbes asked me who they are actually for.
The strongest candidates are retirees, or those within five years of retiring, who have a Social Security base that does not quite cover fixed monthly expenses. For that household, an annuity that guarantees income on top of the Social Security cost-of-living adjustment can be the difference between sinking and floating during retirement. It covers the gap between what arrives every month and what has to go out every month, so the portfolio is never forced to sell in a bad year to pay the electric bill.
Two cautions. It is not wise to have a disproportionately large amount of your net worth in annuities because of their limited access. The trade for guaranteed income is liquidity, and an emergency that lands inside a surrender period is expensive. Most of my clients who use one put a minority of assets into it, sized to the income gap and no larger.
And an annuity is only as good as the company standing behind it, decades from now. Check the carrier's financial strength ratings before the rate, because the promise you are buying has to be kept in 2050.
Solve a specific income problem with a specific product. Do not buy the category.
Read the full article at Forbes →
