PHONE: (717) 303-1999

Financial and Retirement Planning Blog

Annuities Have Been Around For Longer Than You Think

As the Stock Market wobbles, it has some thinking about “safe money” investments.  The idea of having money saved up for retirement and receiving income during that period didn’t start with the establishment of Wall Street. You might be surprised to know that even the ancient Romans had forms of annuities that would pay their citizens later in life. Now of course back then the way they worked was a little different than how they work in their current form, but the overall concept was the same.

How Have Annuities Worked Throughout History?

The kinds of annuities the Romans would have used were payments for their years of military service, and they worked most similarly to today’s single premium immediate annuity. This form of compensating individuals for military or other public service would continue on beyond Rome and into the medieval and renaissance periods when many monarchs and barrons had wars to pay for. But eventually annuities did come to the American colonies as a way to compensate church leaders first, but then as a way to pay those who joined the continental army during the War of Independence. The first time citizens could purchase annuities like they do today was in 1812, though most annuities up until the mid 20th century were more like pension funds. But annuities became more of what they are today when President Reagan and Congress signed into law the bill that allowed annuities to grow tax deferred. And that’s where they are today as one of several options to have tax exempt earnings which you can rely on as annual income during retirement.

What Kind Of Annuity Should You Buy?

As previously mentioned, the single premium immediate annuity has been the one that’s been around longest, and it’s also the one that pays the most in retirement income. But not everyone may want to put down a huge lump sum of cash for an annuity. For those who can’t do that, they may choose to go with a fixed or variable annuity that they pay into over the course of several years and then receive their income once they reach the legal retirement age. And if you don’t need to receive the income right away, you might choose to go with a deferred annuity that you can receive income from at a later date and in greater quantities. The main difference between a fixed and variable annuity is that a fixed annuity won’t generate very high gains because they’re invested in very safe vehicles. Variable annuities on the other hand tend to have a little more involvement from the buyer in what they’re invested in and could generate higher future payouts, but there’s also a lot more risk involved. There’s also indexed annuities which can be anywhere in between the fixed and variable annuities in that they tend to fluctuate a little with market indexes like the S&P 500, but they don’t have the same kinds of gains as stocks or other funds in a variable annuity.

Is An Annuity Better Than An Ira?

The answer to this depends on what your specific investing and retirement goals are. If you have a lot of money you want invested right away and don’t want to deal with maximum annual contributions to your account, an annuity usually is the better option. You also might prefer it if you’re uncomfortable making investment decisions and buying securities, and would rather have someone else do it for you. But if you don’t see retirement happening for years, and you would rather be more in control of making investment decisions and taking distributions when the time comes, an IRA may be the better choice for you.

Investment Advisory Services offered through Retirement Wealth Advisors (RWA), a Registered Investment Advisor. Pennsylvania Wealth Management and RWA are not affiliated. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Consult your financial professional before making any investment decision.

This information is designed to provide general information on the subjects covered, it is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Pennsylvania Wealth Management and its affiliates do not give legal or tax advice. You are encouraged to consult your tax advisor or attorney.

Annuity guarantees rely on the financial strength and claims-paying ability of the issuing insurer. Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products. They do not refer, in any way, to securities or investment advisory products. Fixed insurance and annuity product guarantees are subject to the claims‐paying ability of the issuing company and are not offered by Retirement Wealth Advisors.

Million Dollar Round Table (“MDRT”) is a membership organization. Qualifying criteria for membership includes attaining specified levels of commissions earned, premiums paid or income earned on the sale of insurance and other financial products. MDRT membership requirements include the payment of annual dues, compliance with ethical standards, and maintaining good standing with an MDRT-approved professional association. The MDRT logo and/or trademarks are property of their respective owners and no endorsement of Jason Bergey or Pennsylvania Wealth Management is stated or implied. MDRT and Retirement Wealth Advisors, Inc. (RWA) are not affiliated.