It depends entirely on your goals and attitudes. The person comfortable with an annuity wants guarantees. The principal is guaranteed and so is the income it will generate. If you’re in an annuity, it doesn’t matter one bit what the stock market is doing. If you’re the type of person who wants maximum gains and likes to pay attention to the markets, an annuity is not for you.
There is a mid-way solution. An Equity Indexed Annuity participates in the stock market when it’s up. If the market drops in a given year, you do not lose money. You’re credited with 0% interest. Your gains from previous years are locked in, so once achieved, they are never lost. It’s been my experience in the 20 years or so since these plans have become available that their average return is somewhere between 5% and 6%. If that kind of return with no worries works for you, then I’m your guy. It’s been 20 years since I sold any other type of annuity.
All annuities grow, tax deferred. If you make a single payment into an annuity, it will grow, without you having to claim it on your tax return each year. You only pay the tax on the gain when you start to withdraw it. Presumably, this will be after retirement and you’ll be in a lower tax bracket, so you will have saved money on taxes by deferring.
Annuities can now be combined with Long Term Care Insurance in a hybrid policy. It’s a way to get a long term care benefit, if you’re uninsurable. However, if you can get insured, a Life/Long Term Care hybrid policy is a better option.
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