Prioritizing your income and deciding how much should go where can be difficult, especially in today’s economy. One of the toughest decisions many Americans face is how much of your savings or 401(k) should go towards annuities. CNN Money.com recently published an article on this topic, in response to a question from an Ohio taxpayer. You can find a section of their answer below, or check out the full text at CNN Money.com.
Question: What portion of my 401(k) and savings should I move to annuities? -- Jack S., Alliance, Ohio.
Answer: That depends. Many annuities have such onerous fees and other drawbacks that you're better off avoiding them altogether.
There's one type, though, that I've long believed can play a useful role in some retirement portfolios. I'm talking about immediate income annuities, where you turn over a lump sum to an insurance company and in return receive guaranteed monthly checks for life, regardless of how the economy and markets fare.
But while most people should at least consider devoting some money to such an annuity at retirement, don't assume that buying one is the best move for you.
For one thing, retirees automatically qualify for an immediate annuity of sorts -- Social Security, which provides guaranteed, inflation-adjusted lifetime payments. If you'll be collecting a pension on top of that, you may very well have the assured income you'll need to cover enough of your expected outlays in retirement without an annuity.
What's more, if you have large balances in your 401(k)s and other retirement accounts, you might be able to draw enough from them with little risk of outliving your assets.