Annuities are investment contracts taken with insurance companies that function much like IRA accounts with tax-deferred earnings, and provide you with a predetermined income stream at a future date.
PROS:
- No Income Limits – There are no income limits on annuity contributions, so this means they can provide a supplement of extra retirement earnings even if you’ve maxed out your retirement contributions or exceed the income limits to make traditional or Roth IRA contributions.
- Predictable Income – They can also be set up to provide you with a predictable income, either for a specific period of time, or even for the rest of your life. That’s an excellent benefit to have now that traditional defined benefit retirement plans are fast disappearing.
CONS:
- Confusing Offerings – Annuities come with a wide variety of provisions that can make them confusing to the average person. They are also provided by commissioned insurance agents, which can be problematic.
- High Fees – Confusing offerings and unclear advantages of annuities also contributes to one of the biggest arguments against them: they contain high fees.