Are annuities safe?


Due to their flexibility, guaranteed returns and tax benefits, annuities are considered a safe investment for those who wish to build a nest egg for their retirement. Annuities provide a regular income for your years of retirement or for a period specified by you.

Factors Determining the Safety of Annuities

When signing their annuity contract, annuity owners are guaranteed by the insurance company a certain rate of return on the money they are to invest. So the most determinative factor that annuity safety is contingent on, is the financial strength of the insurer.

Is the insurance company solvent? What is its credibility and reputation? How about its rating? All these are important questions that require your attention when you go about looking to purchase an annuity. The more financially stable a company is, the safer your annuity investment and the more secure your savings will be.

In order to determine how safe an annuity is, you should also consider the difference between the various types of annuities. Just like life insurance policies, different kinds of annuities are offered that are tailor-made to match your financial needs and objectives, with each of them providing a different degree of safety.

What Are the Safest Types of Annuities?

If you want to assure your future financial security, you should choose one of the following types of annuities: immediate annuities, fixed annuities, deferred annuities or life annuities. All these annuity types guarantee a healthy growth of your savings, without exposing your investment funds to any unnecessary risks.

With variable annuities, the financial risk is bigger since the investment is in the stock market which is changeable and turbulent. Therefore, if you are looking for a safe investment and cannot afford to take any market risks, you should not opt for a variable annuity.

Annuities are considered a safe investment because of the favorable tax treatment they receive. Annuity gains are not subject to income tax unless they are withdrawn or income is received from them. In the latter case, the earnings are taxed as ordinary income.

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