Fixed annuities offered by insurance companies have been very unpopular among investors in the past because of their high fees and complicated terms and conditions. People have often been warned to stay away from annuities by many experts. However, annuities are slowly making a comeback as an investment option for retired people or those who just have a few years left to retire.
Last year, the assets under fixed annuities grew by $108 billion – almost a 50% increase from 2008. Many Americans are putting their money in annuities even now when the economy is recovering and other investment options are also beginning to look attractive. Providers are even pitching for inclusion of annuities in 401(k) plans offered by employers.
The reason for this trend is that annuities offer a high level of security. They provide a regular monthly income that retirees usually prefer. During economic recession, many retired people saw the value of their investments dip to extremely low levels. But people who had annuities had nothing to worry about as they kept getting regular payments every month.
The kind of security that annuities provide is similar to pension. The annuities market is also benefiting from the fact that most people are still looking for ways to compensate for their losses and annuity providers claim to be fully equipped to fulfill their investment needs. Even the Obama administration has indicated its tacit approval of annuities after the Middle Class Task Force reported in the beginning of this year that fixed annuities can reduce the chances of retirees outliving their retirement savings because of losses.
The main advantage of annuities is that they provide you with a fixed income, but it can become a disadvantage if the market situation improves and you are better off investing in stocks or other lucrative investment options. Annuities are not meant for everyone as those who are very old or suffering from bad health will not be able to recover the money that they pay to the insurance company. This disadvantage is being eliminated somewhat as the heirs of investor are now allowed to receive monthly payments at a slightly lower rate by many companies.
Annuities are also not a suitable option for young investors due to the moderate returns that they offer. People who were young should be ready to take more risks and they should opt for fast-growing investments.