What is an Annuity?

Annuities are a great option to solve income for life.  If you don’t have a work pension, you may want to consider purchasing an annuity for a portion of your income solution.  Just like all investment and income choices, there are pros and cons.  For instance, a big pro is that you can index your annuity and have it pay out for life along with adding a guarantee period in case of premature death.  There are even variable annuity options that provide you (and your spouse) income for life while investing the funds into segregated funds (similar to mutual funds but through insurance companies).  This option solves the income for life and the underlying investments may still provide a value at death for your beneficiaries (based on many factors).  The cons of pure annuities is that you exchange your principal for the lifetime income stream leaving you with no liquidity or access to lump sums if needed.  However, a variable annuity usually does all access to the underlying investment.  Life annuities do take away the very real concern of outliving your money as a life annuity pays out until death, even if you live past 100 years.  Given the current concerns of inflation, indexing your annuity to inflation should be considered.  As you can see, the options can be complex and before you make any decisions, you should always seek advice from a financial professional and in the case of annuities that professional needs to be licenced to deal with insurance products.


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