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Have you heard horror stories about annuities?  Relax.  They don’t have to be scary.  In fact, they can be downright invaluable in the right situation.

At their core, an annuity is an exchange of money for a guaranteed payout.  The simplest form is called a SPIA – a Single Premium Immediate Annuity.  Give an insurance company $100,000 for example, and they’ll promise you an income stream for life – no matter how long you live.

If that sounds a lot like Social Security – you’re right!  Social Security is a form of an annuity.  So are those old pension plans most of us would love to have back.

Annuities can be very sophisticated – guaranteeing growth on our money when income is deferred.  They can have special death benefits, long-term care type benefits, and other features that make them flexible and powerful.

At the end of the day, there are two overarching reasons to own an annuity:

  1. They guarantee income payments for life.  Even if 100% of the annuity assets including accrued interest – have been paid to you as income – those income payments will continue for life – guaranteed.  Annuities are the only asset you’ll ever own – that you cannot outlive.
  2. They eliminate downside risk to principal.  No matter what happens in investment markets – annuities will not lose money – something that is very important as we transition from the accumulation phase of life, into retirement.

If you want money you can’t outlive – and that will not be ravaged by market gyrations – give annuities a new look.