If you have an annuity through your work or from a structured settlement, you have a great start on your retirement funding. Since you don't have to pay any taxes on annuities until you begin to withdraw the funds, it's a great investment in today's tax hungry economy. However, this type of investment is not without its drawbacks. Below you'll find a list of pros and cons for annuities to help you determine if this is the right investment for you.

Pros

The pros do outweigh the cons in most cases. This is because of the tax issue mentioned above, but also because it's generally considered a safe investment. Many companies route money into their employee's annuity accounts, which over time will grow into a comfortable nest egg for most people. Another positive element this type of investment strategy is that you don't have to cash out your accounts should you change jobs. You simply change where the deposit is coming from.

If you have been injured in a serious accident, a structured settlement is also very beneficial. A monthly payment is made to you to help cover living expenses and medical costs. In most cases, these structured settlements can also be "bought out" for a lump sum. For those who want to invest their settlement earnings, this is definitely an advantage. Most of the personal injury lawsuits today of substantial size are settled out of court through this type of annuity.

Cons

The cons of annuities are usually limited to tax liability. If you draw your money out before you retire, you are subject to the full amount of the taxes and additional fees and penalties. It's one reason why you should diversify your retirement savings, just in case you may need the money before your actual retirement date.

In some cases, you will not be able to access your annuity savings when you quit or otherwise leave your job until after specified period of time. One of the drawbacks to this is a downturn in the economy. It's hard to sit back and watch your account balance fall because the bigwigs on Wall Street are having a rough time. By leaving some of your cash in an easily accessible account, you'll be able to get your hands on the cash you need.

In Closing

Annuities are great way to save for retirement. However, it's not without some risk and the penalties for early withdrawal can cost you a bundle. It's best to speak with a professional to determine the best way to diversify your portfolio to make sure you have access to the funds you need in a case of an emergency.