Free Retirement Classes. What You Need To Know To Retire Successfully

What are annuities?

Types of Annuities

Annuities Fees & Expenses

Annuity Terms Glossary

Taxation Of Annuities

Objections to Annuities

State Annuity Guaranty

Questions about long-term care?

When most people think of longterm care for the elderly, they think of nursing homes. But it can involve much more than that.

Pros and Cons of Annuities

Before we address the pros and cons of annuities, we’ll first characterize the “perfect investment”. The perfect investment has 6 characteristics:

  • Unlimited growth
  • Provides an income stream for life
  • 100% Liquid
  • Little risk
  • No cost
  • Tax-Free

Unfortunately the perfect investment does not exist, therefore you must build a portfolio comprised of various investments, that combined, strike a good balance of these characteristics. Although investments may offer multiple characteristics, they typically are used for a specific purpose. For example, one would typically use equities for growth in a portfolio, cash and bonds for safety and liquidity, and annuities for lifetime income, safety and tax deferral.

Annuity Pros:

  • Variable annuities may be used for growth
  • All annuities offer the potential for income. The annuity owner may choose how long the income will last. For example, SPIAs may generate income for a 5 or 10 year period, or for a lifetime for one or two lives.
  • All annuities other than variable annuities protect your principal from loss.
  • Generally speaking, with the exception of variable annuities, annuities do not have fees or expenses unless the owner adds an income rider. Mutual funds and ETFs have expenses.
  • Annuities are tax-deferred
  • With exception of variable annuities, protect a portion of your portfolio from stock market losses.
  • With exception of variable annuities, protect a portion of your portfolio from Sequence of return risk.
  • Annuities with income riders have set payout rates that typically generate more lifetime income than safe withdraw rates.

Annuity Cons:


  • With exception of variable annuities, provide limited growth.
  • Limited liquidity – Annuities have surrender charges if you surrender your annuity during the surrender period, which it typically 7 – 10 years, sometime longer. However, annuities provide 10% annual penalty-free withdraws.
  • The income from the annuity is guaranteed by the paying claims ability of the insurance company, not a bank or federal government. With this being said, the risk of an insurance company not paying its obligations is an extremely low risk. Insurance companies are required to have a certain percentage of cash available to pay claims, if an insurance gets into financial trouble, typically another insurance company will purchase that book of business and if there is not buyer, each state insures up to $250,000 for a particular company.

For over 20 years, Jim Musgrave has been serving families and businesses as their financial advisor.  Let us put our money management expertise to work for you.  Set up a no obligation consultation by either filling out our contact form or by calling us at 301-588-0514.  We are here for you!

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