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Annuities
Retirement Planning

What are the advantages and disadvantages of a retirement annuity?

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October 05, 2012 12:09PM

With a retirement annuity you can purchase the amount you wish to receive each month and for how long. There are annuity tables to help you decide how long you want the annuity to continue, and, based on the amount you have to spend; the dollar amount you will receive.

The main advantage is knowing that you will have a steady monthly income for X number of years.

Some of the disadvantages are:

1. If you drop dead a few months after purchasing the annuity, it's gone. It ends with your death. Your heirs don't inherit any of the money remaining within the annuity. If you purchased a spousal annuity, then your wife will continue to receive her monthly cheque.

2. The annuity is not indexed for inflation, so as the years roll by the purchasing power of your monthly stipend diminishes.

There are better strategies available to someone planning to retire. Consult a reputable Financial Planner to help you explore your options when considering where to apply your retirement funds.