If you’re looking for guaranteed income during retirement, one option is an annuity. However, it's worth remembering that an annuity can💟 be considerably more expensive than managing your retirement portfolio yourself.

Here's a look at the 澳洲幸运5开奖号码历史查询:different types of annuities, their pros and cons, and the lowest-cost options to help yo💜u decide whether an annuity makes sense for your retirement.

Buying an Annuity

There are two different ways to purchase an annuity. One option is an 澳洲幸运5开奖号码历史查询:immediate payment annuity, a product you buy with a lump-sum payment, such as the funds you'll roll over from a 401(k) when you retire. In this case, the payments start immediately. Or you can choose a 澳洲幸运5开奖号码历史查询:deferred payment annuity, which is funded using periodic deposits over time an✤d starts paying out at a speꦛcified future date.

Both types of annuities come in three different varieties: fixed, variable, and equity-indexed. Each꧂ offers its own combination of certainty, risk, and fees.

Fixed Annuities

These annuities have a guaranteed 澳洲幸运5开奖号码历史查询:rate of return that is fixed at the time of purchase. When you buy a 澳洲幸运5开奖号码历史查询:fixed annuity, you will be told the guaranteed income stream. The risk is that the rate of return is fixed and your income stream may not be enough to meet your needs as 澳洲幸运5开奖号码历史查询:inflation increases the cost of living.

Variable Annuities

These annuities provide investment accounts called "sub-accounts," which are 澳洲幸运5开奖号码历史查询:similar to mutual funds and let you take some advantage of any growth in the market. 澳洲幸运5开奖号码历史查询:Variable annuities are a popular type of annuity because there is less risk of your income stream being eroꦍded by a fixed rate of return. That stream will rise and🍒 fall depending on the success of the investments in your sub-accounts.

Many financial advisors dislike variable annuities due to their high management fees. Notably, Suze Orman believes that "variable annuities exist for one reason only: to make money for the financial advisers who sell them."

Equity-Indexed Annuities

An 澳洲幸运5开奖号码历史查询:equity-indexed annuity is a fixed annuity with a portion tied to a stock index that attempts to offset some of the risks of inflation. Insurance companies use a “participation rate” to figure how much of your stock market gain they will keep to offset their risk—they need to keep paying you if the market turns bad. The one advantage of an equity-indexed annuity over a variable annuity is that there is a less ꦛdownward risk to you.

Benefits of Retirement Annuities

The primary reason people choose annuities is to get a guaranteed income stream. With an annuity—especially a fixed annuity—they know what their monthly income will be (and can budget accordingly). This saves them the task of managing their retirement portfolio, a plus for those who worry they aren't capable of managing their own portfolio.

In add𝔍ition, a guaranteed income protects you if♊ the economy turns bad and other investments tank.

Cons of Retirement Annuities

Hereܫ are the top three rea🍰sons to avoid an annuity.

1. Not Liquid

If you need money more quickly for an emergency, you will pay stiff penalties—generally 5% to 10%. Surrender charges are reduced the longer you own🀅 the annuity, but can be a factor for as long as 15 year꧋s. Always ask about surrender charges before you buy an annuity.

2. Higher Taxes for Heirs

Your heirs' tax bill will be based on the cost of the initial purchase of the annuity. All the gains will be 澳洲幸运5开奖号码历史查询:taxed at ordinary income rates and they will need to pay them immediately after taking possession. If your portfolio had been in stocks or mutual funds, the tax basis would be “澳洲幸运5开奖号码历史查询:stepped up,” which means that the taxes they will need to pay upon sale of these assets will be the 澳洲幸运5开奖号码历史查询:market value at the time of your death. They will not have to pay taxes on the years of gains prior to your death.

3. High Fees

A “澳洲幸运5开奖号码历史查询:mortality and expense" fee, for example, can be as high as 1% to 2% per year. You can hire a professional portfolio manager for the same cost and not have to pay the other fees tacked on to an annuity. These additional costs can include administrative fees and subaccount expenses (unique to variable annuities). Some annuities have 澳洲幸运5开奖号码历史查询:rider fees, depending on the options you select.

The Bottom Line

Annuities are an option if you are not sure you have the skills to manage your retirement portfolio and want to be certain you won’t run out of funds during your lifetime. Make sure to do you🍷r researcꦐh and be certain you understand all the fees and taxes you will have to pay for the income-stream guarantee.

Compare what the annuity salespeople would provide with the services that are offered by other financial advisors. Consider having a one-time consultation with a fee-based financial advisor who does not make money based on the option you choose. A fee-based financial advisor can help you understand the annuity contracts you are considering and show you other options to help you decide what makes the most financial sense.