Annuities can be a valuable financial tool, but they aren’t for everyone. Below are some pros and cons to help you decide if an annuity is right for you. For those interested in an annuity, Church Benefits Board (CBB) offers an in-plan annuity option entitled Secure Foundation II.
Advantages and Disadvantages of Annuities
Annuities can be a beneficial addition to a retirement plan, especially for those seeking stability and lifelong income. However, it is essential to weigh these benefits against potential drawbacks and consult a financial professional to determine the best approach for individual circumstances. Learn more about annuities and the essential questions you should ask on our Annuity FAQ page.
Advantages of Annuities
- Guaranteed Lifetime Income – Many annuities offer the option of guaranteed payments for life, ensuring retirees do not outlive their savings.
- Tax-Deferred Growth – Earnings within an annuity grow tax-deferred, meaning taxes are not owed until withdrawals are made.
- Customizable Options – Various annuity types allow individuals to choose between fixed, variable, or indexed returns to align with their financial goals.
- Protection Against Market Volatility – Fixed and indexed annuities provide stability, reducing exposure to stock market fluctuations.
- Estate Planning Benefits – Certain annuities include death benefits, allowing beneficiaries to receive payouts without going through probate.
- Clergy-Specific Benefits – In some cases, such as Church Benefits Board’s in-plan annuity, clergy may retain housing allowance benefits, offering additional tax advantages.
Disadvantages of Annuities
- Limited Liquidity – Many annuities impose surrender charges for early withdrawals, which can reduce accessibility to funds.
- Potentially High Fees – Some annuities carry administrative fees, mortality and expense charges, and investment management fees that can erode returns.
- Complexity – Annuities often have intricate structures with multiple options, requiring careful evaluation to ensure they align with financial goals.
- Tax Treatment of Withdrawals – While tax-deferred, annuity withdrawals are taxed as ordinary income, which may result in higher tax rates compared to capital gains treatment.
- Inflation Risk – Fixed annuities may not keep pace with inflation, potentially reducing purchasing power over time.
- Dependence on the Insurer’s Financial Strength – The ability to receive annuity payments depends on the insurer’s financial stability, making it important to select a reputable provider.
Beware High-Pressure Annuity Sales
The Aggressive Tactics of Annuity Agents
Some insurance agents selling annuities can be aggressive in their approach, often using high-pressure sales tactics to persuade clients to purchase products that may not be in their best interest. They may emphasize the benefits, such as guaranteed income and tax-deferred growth, while downplaying potential downsides like high fees, surrender charges, and limited liquidity.
Some agents target retirees or individuals unfamiliar with financial products, making exaggerated claims about security and returns to push expensive annuities that provide them with high commissions. This aggressive sales strategy can lead to customers feeling rushed or misled into long-term financial commitments that may not align with their actual needs and goals.
Learn more about annuities and the questions you should consider on our Annuity FAQ page.
Secure Foundation II:
Church Benefits Board’s In-plan Annuity
For those interested in an annuity, CBB offers an in-plan annuity option entitled Secure Foundation II. Here are some highlights and advantages of this in-plan annuity product:
- Upside Potential & Downside Protection
- Guaranteed Lifetime Income
- Distributions are available as tax-free Housing Allowance distributions
- Portability within the CBB plan
- Extremely low annual fee. There are no commissions charged, unlike other annuity providers.
