Summerlin Benefits Consulting Q&AAnswer
Oct 15, 2024 - 09:39 AM
One key disadvantage of annuity investing is limited liquidity. Once you invest in an annuity, it can be challenging to access your money without incurring penalties or surrender charges, especially during the initial years of the contract. For example, many annuities have a surrender period during which you can only withdraw a limited portion of the funds without facing fees. This means that if unexpected expenses arise, or if you need to reallocate your investments, you might face penalties. Additionally, inflation risk can also be a concern if your annuity does not offer inflation protection, as the purchasing power of fixed payments can decrease over time if inflation rises.
Another potential drawback is higher fees associated with certain types of annuities, especially variable annuities, which may charge for management, administrative costs, or added benefits like riders. These fees can reduce overall returns compared to other investments.
It’s important to weigh these disadvantages against the benefits of guaranteed income and principal protection, and consider how an annuity fits into your overall financial plan.
Another potential drawback is higher fees associated with certain types of annuities, especially variable annuities, which may charge for management, administrative costs, or added benefits like riders. These fees can reduce overall returns compared to other investments.
It’s important to weigh these disadvantages against the benefits of guaranteed income and principal protection, and consider how an annuity fits into your overall financial plan.
