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Close of Biz: Annuity versus Pension

by Editorial Staff--South Jersey Biz

From the early stages of our careers, we are advised to start investing for our future. Having a plan in place for your retirement is the ultimate goal, and though it may seem easy, deciding just where to invest your money so that it will be there when you need it is anything but.

We spoke with several local financial experts to find out the difference between two popular investment options—annuities and pensions—and asked about exactly what it is people should know when they’re deciding between the two.

Albert A. Fox, CFP, CIMA, Senior Vice President & Executive Director, Fox, Penberthy & Dehn Morgan Stanley

What is an annuity?
An annuity is a fixed sum of money paid in regular intervals at a later period of time. These payments often last for the entirety of the recipient’s life, but are subject to claims paying ability of the insurance company.

What is a pension?
A pension is a fixed payment made to an individual after retirement. These payments are usually made from a defined benefit retirement plan that was set up with the individual’s employer.

What are the similarities?
Both annuities and pensions offer individuals a stream of income later in life and can act as retirement strategies.

Is one more beneficial than the other?
It’s important to seek help to learn the features and benefits of each and which would be more suitable based on your unique situation. By speaking with a financial professional, you will receive guidance and insight into which option is better for meeting your financial targets.

Stanley Molotsky, President and CEO, SHM Financial Group

What is an annuity?
An annuity is a contract with an insurance company. The majority of annuities have one feature in common—the insurance company promises to pay you an income on a regular basis starting when you choose, for a period of time—including the rest of your life.

What is a pension?
A pension plan does not have to be guaranteed by an insurance company. It can be guaranteed by the particular company or school district or state or federal government to pay (as long as they have the money to pay).

What are the similarities?
The similarities are guaranteed payments, but you certainly have to know who is guaranteeing your payment and what your costs are, if only to guarantee that payment.

Is one more beneficial than the other?
One must look at their options to determine which type of plan is best for them. For a more detailed comparison, feel free to read our book, Exit Strategies for a Secure Retirement.

Michael P. Pallozzi, AEP, CLU, ChFC, President, HFM Investment Advisors, Inc.

What is an annuity?
An annuity is a contractual financial product, sold byfinancial institutions, designed to provide an income for a specified period of time, in exchange for a lump sum payment. Payments are guaranteed by the institution issuing the annuity.

What is a pension?
A pension is a regular payment made during a person's retirement. If the pension is from a company with more than 25 employees, the payment is insured by the PBGB. Pensions from governments are backed by their taxing authority.

What are the similarities?
The similarity is that both can provide a fixed payment during retirement. The types of payments, the guarantees, and the costs vary widely, which necessitates a thorough analysis by a qualified financial professional.

Is one more beneficial than the other?
The “best” option is based on the options available and the individual’s specific financial needs at retirement. An individual is best served by talking to a qualified “fee only” advisor that is positioned to give unbiased advice.

Disclaimer
Albert A. Fox is a Financial Advisor with the Global Wealth Management Division of Morgan Stanley in Mount Laurel, NJ. The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Smith Barney LLC, Member SIPC, or its affiliates.

Published (and copyrighted) in South Jersey Biz, Volume 5, Issue 8 (August, 2015).
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