If you’ve planned for retirement and researched all of your options, you probably have a good understanding of what are annuities for. If not, you can think of a

annuity

like an insurance contract that guarantees you regular payments now or in the future. You invest your money in an annuity now and get guaranteed income later when you plan to retire.

Unfortunately, annuities have a very bad reputation, mainly because some annuities are too expensive and poorly constructed. Some consumers who do not know the different types of annuities will be upset at the mere mention of this financial product, usually because they have dealt with an arrogant financial advisor or heard horror stories about annuities with high fees.

I remember an older man I met several years ago who held this position. This person was already retired and he had a significant amount of money in his 401 (k) and an IRA. I first told him about annuities because he told me he was worried about the stock market

volatility

, and he looked at me like I was trying to sell snake oil.

I felt like he had a bad experience with an agent trying to sell him an annuity he didn’t need, so he immediately fired me. Unfortunately, he didn’t realize that there are different types of annuities and that one of them might be right for him depending on his goals.

Interestingly, he returned to my office a year later after further market volatility with the goal of buying an annuity no matter what. Apparently, he had done further research into how annuities worked and realized that he was getting older and his health was deteriorating. Ultimately, that meant he was looking to buy an investment that could secure part of his wallet and offer him guaranteed payments.

Signs that an annuity may be right for you

While many annuities are too expensive and too complex, some can actually be a good deal for the right kind of investor. Here are some signs that an annuity might work for you, provided you do your homework and consider all the pros and cons.

1. You want guaranteed income

The main reason to buy an annuity is if you want a full guarantee in terms of the income you will receive in the future. Unlike stock market investments where you could earn money or lose money along the way, many types of annuities (such as fixed annuities) promise to give you an exact amount of money for a specified time, which you can count on without any risk.

This makes annuities a good option for people who are worried about outliving their savings or anyone who wants to build up some retirement income they can count on later. Some annuities even offer a guaranteed increase in the future monthly benefit, which can help account for inflation over time.

2. You want a simple investment strategy

Once you buy an annuity, you can receive guaranteed payment for the rest of your life, even if you live much longer than expected. You don’t have to worry about whether your investment will yield the kind of return you were hoping for, and you won’t have to adjust your lifestyle later due to insufficient returns.

If you know that you are going to receive a fixed amount of money from Social Security and that you can purchase an annuity that will pay out enough to cover the difference in your living expenses, for example, this strategy may offer you a hassle-free solution. plan to lock in the retirement money you need.

3. You want to leave money to your heirs when you die

When you buy many types of annuities, your heirs are guaranteed to receive at least the amount you paid at the time of your death. With some types of annuities, you will continue to receive payments until your death, but your payments will continue for a specified period of time, even after your death. In this case, your beneficiary will receive the payments.

This means that annuities allow you to pass money on to your heirs, even if it is less than it might be if you invested elsewhere. Just keep in mind that the earnings generated by annuities are counted as taxable income for your beneficiaries.

What to watch out for with annuities

While annuities may be suitable for individuals in specific circumstances, I would never suggest putting all your eggs in this basket, even if you are petrified by volatility and market risk. At most, you shouldn’t put more than half of your portfolio in an annuity.

Also, be sure to research all available options and watch out for potential pitfalls. For example, annuities often come with incredibly high fees this can make them a poor choice over other options, and they frequently charge a redemption fee which can make liquidating your investment prohibitive.

Generally speaking, it is best to maximize tax-efficient retirement accounts as a 401 (k) account, a Solo 401 (k), or a SEP IRA plan first, then move on to other options after that. If you have extra money to save for retirement, the Guaranteed Return Annuity Promise can provide you with income and peace of mind.

Jeff Rose is an entrepreneur disguised as a certified financial planner, author and blogger. He is best known for his award winning blog GoodFinancialCents.com and his book “Soldier of Finance: Take Charge of Your Money and Invest in Your Future”.