How Are Investments Different From Annuities?

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Annuities and investments are not the same things. These are the key differences and similarities between annuities and investments:

Other than variable annuities, 100% of the principal and the growth of an annuity is guaranteed, no matter what. Even when the stock market was down 40% in 2007 and 35% in 2020, annuity principal was protected and suffered no loss. In some ways, annuities and investments are similar. In many other ways, they are quite different. Below is a discussion of some of the pros and cons of annuities versus investments.

Annuities create GUARANTEED, INCOME FOR LIFE. If you use the right annuities, the amount of guaranteed, future income will be more than any other strategy you can choose to generate future income. Many people describe annuities as private pension plans.

Annuities are contracts with some of the strongest guarantors in the world. Investments are not.

All the money in an annuity is guaranteed, including all the gains it earns from the day it is purchased. Everything in an annuity contract is regulated and spelled out, providing total transparency. This creates safety, security and predictable outcomes. This is quite different from investments, such as real estate or equities in the stock market, which are good examples of speculation and risk. There are no contracts with equities because there is no certainty. There is nothing wrong with that, it’s just different. One is not better or worse and they all have their places in a financial plan. Annuities are known for being precise, transparent and dependable. The insurance companies make everything in the contract available for policyholders to understand. Nearly every client we have owns annuities and investments.

Guaranteed Interest Annuity

Tax Deferral: Not paying any tax during the annuity’s growth phase can be very meaningful. Taxes will ultimately be paid on distributions. Annuities are not tax shelters but the advantages of tax deferral is significant, especially for retirement purposes.

Rather than exposing legacy assets to loss, mismanagement and other risks, annuities are often used to create lifetime income for beneficiaries. Grandparents are increasingly using annuities to create sheltered income for children and grandchildren. Structured properly, the income is protected and safe from divorce and probate.

Some annuity companies offer generous bonuses to new policyholders. They do this by crediting the incoming account value with as much as 10%. Many people consider the bonus as an offset to surrender charges. The bonuses begin earning interest from day one.

Most annuities have NO FEES and there is NO COMMISSION paid from your assets. The one time commission is paid from the insurance company, NOT YOUR ASSETS. For example, when you pay a single premium of $200,000 into an annuity, the amount earning interest from day one is $200,000 plus the bonus if there is one. In comparison, a 1% “forever fee” for the same $200,000 investment is reducing the account value each year, by $2000. At the end of 10 years, it adds up to $20,000. If the fee withdrawn from your account is 1.5%, then you will pay $30,000 over 10 years.

Some annuities and some investments have surrender penalties. CDs are examples of investments with surrender penalties. Annuities have small, declining surrender penalties to allow insurance companies to invest your money with longer durations and better returns.

For a quote, please call us at 561-771-4647 or email Ted Bernstein, about a complimentary phone consultation.


Also published on Medium.

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Ted Bernstein

Dedicated to helping people create the ultimate retirement security and protection plan to safeguard their families and businesses. I stress guaranteed income solutions, indexed annuities and state of the art wealth preservation strategies. As the innovator of life insurance products without commissions, my recommendations are impartial, objective and always in the best interests of my clients.

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