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Dear Olga: Annuities. What are they?

Dear Olga,

My retirement savings are in annuities and I'm wondering if I should keep them there.



Dear Ray,

Before deciding what to do with your retirement savings, first it's important to understand what annuities are and their benefits.

An annuity is a sum of money guaranteed to be paid out periodically to an individual over a span of time. Most financial advisors view annuities as supplemental savings for retirement, especially if you max out your 401k or IRA contributions.

There are several types of annuities but there are two main groups:

  • A fixed annuity pays out a set amount each year in exchange for a set purchase price. This investment is typically better for those who have low tolerance for risk.

  • A variable annuity pays out an irregular amount based on the performance of the purchased asset. This investment is typically better for those who have more wiggle room in their retirement savings and can afford the risk of potential losses.

  • An immediate annuity's payments begin right away and are more for older investors who need regular income quickly.

  • A deferred annuity's payments begin at a set date in the future and are better utilized by younger investors.

If you're unsure what kind of annuity you have, call your policy management company and ask them to explain your annuities to you. This way you'll know where you stand today. This will be the best place to start understanding your investments.

When thinking about retirement planning, it's important to look at the whole picture instead of viewing each investment separately. This will allow you to make the best decision for your retirement financial needs.

I urge you not to make haste decisions, sometimes sudden changes can incur all sorts of fees and it would be terrible for you to lose out on any of your hard-earned money. Consider meeting with a financial planner who can tailor an ideal retirement scenario that aligns with your current savings & investments, plans for retirement and lifestyle.

If you're looking for a financial advisor, I advise asking about a hot topic for many financial planners these days, is growing life expectancy. As people are living longer, many institutions are adding long-term care coverage into their offerings. Being able to cover as many areas of your retirement in planning stages, will help you have a better cushion to lean on.

I hope this helps you understand the basics of annuities. Feel free to write in again, we can do a follow-up post about any additional questions you may have.

Best of luck!



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