An annuity comes in many forms, but a simple definition is that an annuity is a contract that converts a sum of money into a series of periodic payments for an agreed upon period of time. An annuity can be thought of as a financial vehicle that converts a pool of money into a stream of income. Annuities are most useful in addressing the financial planning needs of people in or approaching retirement. Annuities are unique in the financial world because they can provide protection against the risk or outliving one’s assets (longevity risk) by guaranteeing income payments in perpetuity or any other selected amount of time. Annuities can be viewed as a type of personal pension plan. Social Security is similar to an annuity in that money contributed over the course of one’s working years is converted into a series of periodic payments that provide income during retirement.
Annuity criticisms are a dime-a-dozen.
The majority of financial advisors seem to have some issue with annuities, consumer perception is generally terrible and the financial media often appears to provide a reflection and reinforcement of prevailing sentiment.
There is a case to be made for “control of assets” as the common denominator for both the consumer and...
Liquidity or lack thereof tends to be a major concern when it comes to annuities.
Many financial advisors and consumers are reluctant to use annuities because money allocated to annuity products tends to be tied-up and inaccessible for a period of time. In other words, annuities lack liquidity or are “illiquid.”
In contrast, exchange traded funds (ETF) or shares of IBM stock are highly...
One way to evaluate a...
