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Annuities have been around since the time of the Romans, and although they can be complicated, misunderstood, or overly used by some financial advisors for their clients, they still have a place as a valuable financial tool for some investors and for their advisors to consider. Social Security and traditional pensions are types of income annuities. The reason that payments are so high is that investors receive part principal and part interest over the course of their lifetime, and with the proviso for life annuities that payments never stop. An investor cannot outlive the income payments. Of course, the downside is that if you "die too soon," one may only receive a return of the original unpaid principal. Payments on these type of fixed income lifetime payment annuities are guaranteed by the underlying insurance company.
At Columbus Advisors, we sometimes use these vehicles to provide a higher amount of income that can normally be generated from other fixed income investments. Of course, a specific set of circumstances would need to exist before we would recommend one. Most investors never need to utilize annuities because they do not need more income, or because most of their income is already coming from guaranteed sources such Social Security or pensions, or from stable sources such as real estate rental income.
*Annuities are long-term investments designed for retirement purposes. Withdrawals of taxable amounts are subject to income tax and, if taken prior to age 59½, a 10% federal tax penalty may apply. Early withdrawals may be subject to withdrawal charges. Optional riders have limitations and are available for an additional cost through the purchase of a variable annuity contract.*
*All guarantees and benefits of the insurance policy are subject to the claims-paying ability of the issuing insurance company. They are not backed by the broker-dealer and/or insurance agency selling the policy, or any affiliates of those entities other than the issuing company affiliates, and none makes any representations or guarantees regarding the claims-paying ability of the issuer.*