Annuities are a popular retirement income vehicle with many insurance agents, registered representatives and financial advisers. They probably have as many supporters as detractors. Here are some of the pros and cons of annuities for retirement planning. Pros
A source of guaranteed income. Annuity contracts offer the ability to annuitize the contract into a stream of guaranteed lifetime income. This can augment other retirement savings vehicles that can fluctuate in value such as IRAs and taxable investment accounts holding stocks, ETFs and mutual funds. With so many employers moving away from defined-benefit pension plans offering a contract with a guaranteed monthly income can act as a pension substitute of sorts. Read: ‘Working longer is not a realistic cure for retirement insecurity.’ Time to get real about how long you’ll really work. Different options. There are several types of annuities that offer different income options for contract holders. With an immediate annuity once the premium is paid, the contract can be annuitized almost immediately. With a deferred annuity, the contract holder can annuitize at a later date. This allows a number of planning options for them. A variable annuity offers the ability to invest the money in the contract in mutual fund-like subaccounts generally offering stock and bond investment options. Any growth adds to the value of the contract and the value that can be annuitized later on. Read: 3 common retirement dreams that can become big disappointments A Qualified Longevity Annuity Contract (QLAC) is a deferred annuity that can be purchased inside of a 401(k) or equivalent retirement plan, or inside of an IRA. A QLAC allows the buyer to defer up to $200,000, an increased level under Secure 2.0, into an annuity whose commencement of benefits …