Annuities have been around for a very long time; however, many investors don’t fully understand what they are or how they work.
Is an Annuity Right for Me?
Over the past 15 years, annuities have expanded their benefit options to give purchasers more ways to help maintain their retirement income and residual value. Here are a few of the basics:
- An annuity can help to address the cash flow issues in retirement by providing an income stream. Life expectancies have increased to the point where a 65-year-old couple has a 47 percent chance that one spouse will live to age 90.
- People who expect to live longer than average may wish to consider annuities with a lifetime income option.
- An annuity is a long-term insurance contract sold by an insurance company designed to provide an income stream, usually after retirement. You may incur penalties or reduced benefits if you surrender early. In addition to surrender charges, there are fees and expenses associated with an annuity contract.
- Immediate annuities cease their payouts upon the annuitant's death, leaving no residual value for heirs unless additional riders are purchased.
- Variable annuities may be used as a tax-deferred investment vehicle, even if retirement income is not the primary objective.
Variable annuities, including deferred variable annuities, are long-term investments suitable for retirement funding and are subject to market fluctuations, investment risk and the possible loss of principal. The value of the variable annuity will fluctuate so that when surrendered, it may be worth more or less than the total of premium payments. Before deciding on a variable annuity, you should consider the objectives, risks and expenses of the annuity and its underlying investment options.
Wells Fargo Investment Institute, Inc. is a registered investment adviser and wholly-owned subsidiary of Wells Fargo & Company and provides investment advice to Wells Fargo Bank, N.A., Wells Fargo Advisors, and other Wells Fargo affiliates. Wells Fargo Bank, N.A. is a bank affiliate of Wells Fargo & Company.
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