Tuesday, 30 March 2021 16:37

The Benefits of Annuities vs 401(k)s

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(New York)

401(k)s and annuities are two of the most prominent retirement savings products in the US. However, clients often have a hard time distinguishing one’s advantages versus the other (and disadvantages). In reality, they are quite different products. The only cross-over between them (for now) is that they are both geared towards retirement, and that one can cash out a 401(k) and use it to buy an annuity. The big advantage of 401(k)s is that there are no sales incentives/commissions for a client to take part in an employer’s plan, as well as the fact that they can benefit from employer’s matching their contributions, something that cannot happen in annuities. Annuities, however, have the big advantage of guaranteed income, and because of the ability to choose which annuity one buys, there is more freedom in investment selection. Both have similar terms for early withdrawals.

FINSUM: These products are also great in concert with one another. For example, using part of a 401(k) cash-out to buy a deferred annuity, allowing upside in the 401(k) and guaranteed income in the annuity. Soon enough annuities will be allowed in 401(k)s.

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