Annuities with Guarantees: Invest at Your Own Risk
For retirees and nest-egg savers who have lost their 401ks or just want to make sure their financial cushion is actually secure, annuities with guarantees have recently become an enticing option. However, experts warn savers not to dive into this retirement option head-first, as it does come with a number of risks.
Risks of Annuities
For one, they are by nature more complicated than other forms of investment. But not just that; they are also filled with fees, and in general, lack transparency. Also, they are often criticized for volatile pricing – they’re either too expensive, or too cheap. And they may be susceptible to counterparty risk, which basically means that the insurance company may not be able to hold up its financial end of the bargain.
However, there are some good intentions there. In general, annuities are meant to grow principal and provide a guarantee on that principal. So over time, money grows, leaving what should be a decent amount for the nest egg.
Why are Investors Willing to Risk it?
So if annuities with guarantees are a bit shaky, why are investors taking them on? Probably because they seem to believe there are no other options. But in reality, you should know that there are other options. It’s for this reason that experts advise investors to make annuities a part of their retirement plans – alongside investments, hedges, and reserves – rather than making them the foundation or sole savings option. This way, if something happens to the annuity, all won’t be lost.