Annuities vs Mutual Funds: What do you need to know?

You pretty much know exactly what you’re going to get with an annuity. On the other hand, your returns could be higher – or lower – with a mutual fund. Planning for retirement requires examining all your investment options. Can’t decide between annuities or mutual funds? Here’s a guide that compares the two.


Start with the basics



You receive a series of fixed payments with an annuity that provides you with a consistent income at a pre-determined date. There are fixed and variable annuities. A fixed annuity pays guaranteed rates of interest, while the payments from a variable annuity depend on how well their underlying assets are faring.

Mutual funds

With mutual funds, a portfolio of stocks, bonds, real estate and other securities are pooled together from potentially thousands of investors. That money is then invested and placed as wisely as possible through careful research and analysis.

What’s taxable?



While your capital gains are taxed, any dividends, interest or capital gains you get from the policy aren’t taxed, as long as your money is in the annuity. The money you contribute to the annuity isn’t taxed on withdrawal, either.

Mutual funds

Unlike tax-deferred annuities, you have to pay taxes on mutual fund distributions, as long as you hold shares in a taxable account. Thinking about reinvesting that money into additional shares? You’ll still owe taxes.


Get reliable income



Annuities are one of the safest options when it comes to retirement investments. While your returns might be more modest, they’re also not subject to market fluctuations. It’s guaranteed income, tax deferred and you’ll receive regular payments.

Mutual funds

This policy offers you the potential for higher returns – they keyword being “potential.” Your gains could be far more modest, too, because they will be subject to the ups and downs of the market.


Bottom line? Annuities may be the safer option

All investments come with a measure of risk. However, as Investopedia says, go with the option that offers you a guaranteed income if you don’t have the time, patience or emotional control to play the stock market, or if you’re already nearing retirement age.


Finding help

Your retirement returns will largely depend on when you started and how much you can invest. When you discuss your financial future with Peak American Financial, ask about the terms and conditions of a fixed annuity policy to see if that’s indeed a better retirement option than a mutual fund.

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