Annuities: Key Pros and Cons

In the US, annuities exchange a lump sum or scheduled payments for regular income, often for life, while contributions grow tax-deferred inside the contract.
Potential advantages include guaranteed payouts, fixed-return protection, index-linked contracts with a downside floor, and optional riders for inflation coverage, long-term care, or death benefits.
Key tradeoffs include potentially high fees, seller commissions, and surrender periods of 3 to 10 yr, with early-exit charges that can start at ~7%.
Buyers should also weigh ordinary-income taxes on gains, limited inflation protection on fixed payouts, and significant penalties when early access reduces liquidity.
Common US annuities include fixed for predictable growth, variable for market-linked results, fixed-index with caps and floors, and immediate contracts starting payouts within 12 mo.
In US retirement planning, building a tax-efficient income stream remains a priority, and an annuity may or may not fit that broader strate