What are the Benefits and Advantages of Annuities Versus Mutual Funds/401(k)s?

What are the Benefits and Advantages of Annuities Versus Mutual Funds/401(k)s?

Mar 13, 2019

Investing wisely throughout one’s career to have enough money for a comfortable retirement is an important priority for us all. In fact, many reports indicate that the number one fear about retirement isn’t being bored, unable to travel, or even death – it’s running out of money. Accordingly, smart investors are always looking for opportunities that will provide consistent and maximized growth potential while minimizing risk.

One such option with unique incentives is annuities. Below we’ll take a look at what benefits and advantages annuities offer when compared to other popular investment avenues, such as mutual funds or 401(k)s. We’ll also review how Annuity Emporium can help you achieve your financial goals and secure guaranteed retirement income for life.

What are the Advantages and Benefits of Annuities?

Whatever type of investment option you’re considering, an inevitable list of pros and cons exists which should be fully understood and appreciated. However, when you take the time to thoroughly review annuities, you’ll likely find that the benefits are considerable – both during pre-retirement planning stage, and during retirement.

Some of the most common advantages and benefits offered through annuities include:

• Compounding Tax-Deferred Interest: Money you invest in annuities compounds year after year without ever being subject to a tax bill from the government. By holding on to every dollar you invest, annuities can offer a substantial advantage when compared to the taxes you’ll incur with other investment options without tax advantages like mutual funds or CD’s.
• No Annual Contribution Limit: While other tax-deferred accounts like 401(k)s and IRAs offer protection from a costly tax bill, annuities are a tax-deferred retirement savings option with no annual contribution limit. This means that you can put away much more money, and do so quickly – which can be a major advantage for individuals who may be closer to retirement age and need to “make up for lost time“, and have money geared towards retirement in mutual funds, CD’s or other savings instruments outside qualified plans.
• Growth AND Protection: While stocks and mutual funds can be a great means of growing one’s wealth, they also come with significant risk. There have been approximately 27 stock market corrections (defined as at least a 10% decline in one of the major U.S. stock indexes like the S&P 500 or Dow Jones Industrial Average) since World War II. Furthermore, the longest duration without a double-digit correction was seven years (from 1990 to 1997). According to CNBC, while the average decline has been 13.7%, when a correction equals losses that stretch to 20% (known as a bear market), there’s “more pain ahead and a longer recovery time.”

12 bear markets have occurred since World War II, with an average decline of 32.5% as measured on a close-to-close basis. The most recent was October 2007 to March 2009, when the market dropped 57% and then took more than four years to recover. Since a bear market has not occurred in such a long period of time, one could view the potential risk to stock index investors as actually greater at the present time. Therefore, one has to consider whether or not their retirement savings could actually sustain a 30%, 40%, or even 50% bear market correction when close to retirement or during retirement itself.

But with annuities, smart investors have the benefit of access to markets like the S&P 500 without the downside risk. With fixed index annuities, you get the unique advantage of market participation plus principal protection. This means that you can receive competitive returns when the markets are doing well, but during a downturn you are actually protected against all market volatility.

In fact, if a bear market were to occur, you wouldn’t lose any of your principal investment, but rather receive a zero percent interest accumulation for the year. In other words, with annuities, a bear market would never mean taking a hit of less than a zero percent gain for the year. With annuities, any interest you’ve previously earned during positive or bull market years are automatically “locked in,” thereby protecting you from any future downturns in negative or bear market years.

While you may want to participate in the stock indexes, shielding yourself from potential volatility can be especially important as you get closer to retirement. It’s important to ask yourself – can your portfolio truly sustain a bear market and potential multi-year-long recovery? The opportunity to achieve the growth available through positive market years while protecting yourself from potential downturns is one of the greatest advantages available through annuities.

• Perpetual Income You Can’t Outlive: Annuities are the only investment option to offer a guaranteed lifetime income you can’t outlive (although you can choose to take a lump-sum payment as well). This steady stream of guaranteed income can be set up for a specific length of time or the rest of your life. Guaranteed lifetime income is one of the major benefits offered through annuities.
• Rollover Options: Did you know that you can rollover your IRA or 401(k) into an annuity? Additionally, you can rollover your pension into an annuity for both higher potential income as well as flexibility. You can also rollover CD’s or retirement savings accounts into a tax-deferred annuity, providing the potential for higher growth without the inherent risk of a bear market downturn.
• Legacy Options: While a common misperception exists that annuities are a stream of guaranteed income that effectively ends at the end of one’s life, that is not necessarily the case. In fact, add-on benefits now offer annuity investors like you the option to pass on your legacy directly to your beneficiaries (and tax-deferred as well).

How Can I Invest in Annuities for a Guaranteed Lifetime Income Stream?

Whether you’re rolling over an IRA or 401(k) or making a direct principal investment, Annuity Emporium makes it easy to identify the best type of annuity for your specific circumstances which will allow for the guaranteed income stream you need to provide a comfortable retirement.

Currently, for a 65-year-old American couple, there is a 50% chance that at least one of the spouses will live past the age of 93. But apart from Social Security (which some might argue isn’t really guaranteed more than 20 more years given the changing world economy), annuities are the only true guaranteed lifetime income source available which you can’t outlive.

Whether you’re nearing retirement age or still have several years in the workforce, annuities offer you unique peace of mind in having maximum growth potential but without the downside risk of a bear market which, historically speaking, will absolutely occur in the near future.

To learn more about how Annuity Emporium can help you achieve your retirement goals, contact us today at 866-321-AEIS or at info@annuityemporium.com for a free consultation.