pro-con-listAnnuities are financial products that can provide a guaranteed income stream in retirement. Numerous annuities exist to meet various needs, and each type has benefits and drawbacks. Keep reading to learn about the pros and cons of different annuities, what to consider when selecting an annuity, and how Leonard Financial Solutions can help you build a portfolio that empowers you to achieve your retirement income goals.

How Annuities Work: Understanding Annuity Pros and Cons

An annuity is a contract between you, the annuitant, and an insurance company that provides regular payments, typically in retirement. These contracts have two phases: accumulation and annuitization. During the accumulation phase, you pay premiums into the annuity contract and your investment grows based on interest rate or investment performance. In the annuitization phase, the insurance company returns the money you paid into the annuity, along with investment income or gains, according to the contract terms. However, accessing your annuity funds in the accumulation phase or "cashing out" the contract early can incur a hefty surrender fee. Here's a look at the overall pros and cons of annuities.

Annuity Pros

  • Longevity protection
  • Guaranteed retirement income
  • Tax-deferred growth
  • Death benefit

Annuity Cons

  • Lack of liquidity
  • Surrender penalties 

Exploring Annuity Types

Not all annuities are the same. Here, we discuss some of the most popular annuity options for retirees.

Fixed Annuities 

Fixed annuities earn a guaranteed annual interest rate of around four or five percent during the contract's accumulation period and provides regular payments after annuitization. Though fixed annuities offer principal protection so you can't lose the money you've invested, they lack liquidity and growth potential.


  • Principal protection


  • Lack of liquidity
  • No opportunity for growth

Variable Annuities 

Variable annuities let you direct your premium payments to stocks, bonds, or mutual funds, with the value of the annuity fluctuating based on the performance of the underlying investments. Though this allows for growth in up markets, variable annuities don't provide principal protection. Therefore, you can lose money in a downturn. In addition to risk, variable annuities typically involve substantial management fees.


  • Unlimited growth potential


  • Doesn't protect your principal 
  • Hefty management fees 

Fixed Indexed Annuities 

Like variable annuities, a fixed indexed annuity's growth is connected to the performance of an underlying stock market index you've selected. However, unlike variable annuities, stocks, and other riskier investment options, fixed indexed annuities provide principal protection, so you can't lose the money you've invested. With a fixed indexed annuity, your annual interest rate is never less than zero, even in a down market.



  • Some fixed indexed annuities impose limits on interest accrual, limiting growth potential

What to Consider When Selecting a Retirement Annuity 

Choosing the right retirement annuity is a crucial decision that can significantly impact your financial security in your golden years. Keeping these essential factors in mind can help guide your annuity selection.

Annuity Types

Different types of annuities can help you achieve different goals. Carefully exploring each annuity you're considering can help ensure it aligns with your retirement objectives.

Risk Tolerance 

Understanding your risk tolerance is essential when selecting a retirement annuity. Determining whether you're comfortable with the idea of financial loss in retirement can help you choose between principal-protected annuities and those subject to the whims of the market.

Payout Options

Various annuities offer wide-ranging payout options, from lifetime income to payouts for a defined period to lump sum withdrawals. Figuring out which annuity offers the option that best aligns with your needs and preferences can help direct your decision.

Fees and Expenses 

Some annuities entail higher fees and expenses than others. Evaluating how these expenses might fit into your budget can help you decide between annuities with significant fees, like variable annuities, and those associated with lower costs.

Interest Rates or Investment Performance 

Fixed annuity interest rates and historical or projected returns for variable or fixed indexed annuities help give you an idea of what to expect from your investment. Exploring these figures lets you choose an annuity that meets your needs.

Flexibility and Liquidity

How you fund the annuity and whether you can access your money during the contract's accumulation phase are essential considerations that can help you narrow your retirement annuity choices. Finding out which annuity type offers your desired level of flexibility and liquidity can help you select the right annuity for your retirement portfolio.

Surrender Period and Terms 

Some annuities have a "surrender period" that allows you to cash in the annuity contract early for a fee. Assessing the surrender period and terms is a key factor in selecting a retirement annuity, as it dictates the conditions under which you can access your funds without incurring penalties, influencing your long-term financial strategy.

Surrender Penalties: What to Know About This "Pro" That's Frequently Mistaken for a "Con"

When weighing annuity pros and cons, surrender penalties inevitably make the list of drawbacks. It's easy to understand why paying a fee to cash out your annuity contract early isn't immediately popular. However, surrender penalties serve a crucial purpose: they protect the annuity company and, most importantly, your money.

Surrender penalties keep your money secure and the annuity company from suddenly going belly up. By limiting liquidity to a small percentage of the annuity's value during the accumulation phase and requiring annuitants to pay a substantial penalty to surrender the contract early, the annuity company always has money to invest.

Considering surrender penalties' critical role in protecting your investment, you might move this "con" to the "pro" column.

Our Fixed Indexed Annuities Offer Exceptional Security, Superior Flexibility, and Unlimited Growth Potential

At Leonard Financial Solutions, we realize that you only get one retirement—and after a lifetime of hard work, you deserve to have the retirement income you want. Our team of experienced, independent financial advisors and annuity providers are here to help you build a diversified investment portfolio that enables you to live the retirement of your dreams. Here's what you should know about working with our New Jersey-based advisors.

We Walk You Through All Your Retirement Investment Options

You don't have to be an investment guru to work with our advisors. We're happy to start at square one and explain everything from the meanings of common terms to your investment options to the stability and security that can come with adding the right fixed indexed annuity to your retirement portfolio.

We Partner With Reputable and Established Annuity Carriers

Your financial security in retirement is vital to us. That's why we partner with reputable and well-established annuity carriers with A+ ratings and hundreds of billions of dollars in assets. This level of financial strength and stability provides our clients with assurance, longevity, and protection against collapse or financial instability.

We Offer Fixed Indexed Annuities With Exceptional Benefits 

Fixed indexed annuities are one of the best additions you can make to your retirement plan—and the fixed indexed annuity plans Leonard Financial Solutions offers are an even better choice than most. Here's what sets our fixed indexed annuities apart.

Purchasing and Funding Flexibility

Purchase our fixed indexed annuities with a simple lump sum or make periodic payments—you decide.

Uncapped Interest Equals Unlimited Growth Potential

Our fixed indexed annuities don't place artificial limits on interest accrual, so when your selected market index performs well, you reap the full benefits. Our annuity plans also offer principal protection, so your interest rate is never less than zero, even in a down market.

Limited Liquidity Means Partial Access to Your Annuity Funds Without a Fee 

With our fixed indexed annuities, annuitants can withdraw up to 10 percent of the annuity's value annually during the 10-year accumulation period. These annuity plans also include an illness rider, allowing for penalty-free withdrawals or surrender if you are diagnosed with a terminal illness or require long-term care in the first 10 years of the contract.

Returns That Typically Best Inflation

Our fixed indexed annuity options give you the upside of the market, along with uncapped average returns that historically outperform inflation and allow you to enjoy future annuity payments.