Comparison of Annuities and Traditional Retirement Accounts
Annuities
Annuities are insurance products designed to provide a reliable income stream during retirement. They can be fixed, variable, or indexed, each with different levels of risk and potential returns. Annuities offer tax-deferred growth, meaning you won't pay taxes on your earnings until you withdraw them. This can be beneficial for those seeking stable income in their retirement years.
Traditional Retirement Accounts
Traditional retirement accounts, such as IRAs and 401(k)s, allow individuals to save for retirement with tax advantages. Contributions are made with pre-tax dollars, reducing taxable income in the contribution year. These accounts often offer a variety of investment options, including stocks and bonds, allowing for potentially higher growth through diversified investments.
Key Differences
- Liquidity: Traditional accounts usually allow for more flexible withdrawals compared to annuities.
- Income Features: Annuities provide guaranteed income, while retirement accounts depend on market performance.
- Fees and Costs: Annuities may have higher fees than traditional accounts, which can impact long-term growth.
- Taxation: Withdrawals from both are taxed, but the timing and method can vary significantly.