Disadvantages of Annuities

July 5th, 2011  |  Published in Annuities  |  7 Comments

I have had some posts recently that discussed the advantages of annuities. In the interest of being balanced I will share some of the disadvantages in this post.

1.High Management Fees – This depends on the annuity but in general annuities have high fees.

2. Surrender or Withdrawal Fees – These fees can be avoided but if you find yourself in an unforeseen situation you might face these stiff fees.

3.IRS Penalty for Early Withdrawal – Withdrawals before the age of 59.5 are charged a 10% tax penalty by the IRS unless you meet certain exceptions.

4. Low Liquidity – You are limited on how much you can withdraw from an annuity.

Those are some of the disadvantages of annuities. If you want to mention any other disadvantages or advantages of annuities please feel free to share them in the comments.

  

Responses

  1. A definitive solution to the annuity crisis. « Henrytapper's Blog says:

    July 6th, 2011 at 11:27 am (#)

    […] Disadvantages of Annuities (myretirementblog.com) […]

  2. Annie says:

    July 6th, 2011 at 2:29 pm (#)

    These disadvantages are very true along with the high commissions agents/brokers receive when they sell you an annuity or insurance policy. People put these into IRA’s which are tax deferred anyway. You have to have a good reason for doing that. I believe for many there are better investments out there.

  3. Jerry says:

    July 9th, 2011 at 6:17 am (#)

    Annie’s right about brokers selling annuities having high commissions. But, it’s not always the case. It depends on the broker. People should shop around.

  4. Personal Finance Links – Sunburn Edition says:

    July 16th, 2011 at 4:57 pm (#)

    […] Disadvantages of Annuities at My Retirement Blog.   Annuities have their good points but they also have drawbacks. […]

  5. financial retirement planning says:

    August 2nd, 2011 at 4:53 am (#)

    I think they’re a rip-off and people who push them are usually liars. They often prey on older people aproaching retirement.

  6. Nick says:

    December 10th, 2011 at 12:30 am (#)

    Hmm….a general comment from “financial retriement planning” with no facts to back it up. I appreciate comments like Jerry’s and Annie’s with some substance and something to follow up on.

  7. Andy Rates says:

    January 3rd, 2012 at 1:05 pm (#)

    Annie, you are right about there being better investments out there, but even those are sold by agents/brokers. There will always be this relationship when wanting to make money. I think that an advantage of annuities outweighs theses disadvantages; with an annuity the retiree can continue to live an adequate life rather than be in fear of running out of money before his life is up.