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Why a Retirement Annuity is Better Than a 401(K)



What’s the best way to fund your retirement? Well, I wish could answer that, definitively, for you. But, unfortunately, how you will save for retirement is dependent on your financial circumstances, as well as your unique retirement goals.

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While there are numerous options at your disposal, two of the most prominent are annuities and 401(k) plans. However, despite their similarities, both of these popular retirement savings vehicles have distinct differences and specifics about when each can be withdrawn.

My money, however, is on annuities? Why? Well, this guide will describe why a retirement annuity is better than a 401(k).

Annuity vs. 401(k)

Before going any further, let’s have a brief overview of an annuity and 401(k).

What are annuities?

An annuity is simply a contract between you and an insurance company. The insurer promises you periodic payments for a certain period in exchange for your money. Or, in some cases, until a specified event occurs, such as the annuity owner’s death, aka the annuitant.

Depending on your current situation, you can receive these payments in a series of monthly, quarterly, or annual installments for life. Or, you could receive one lump sum. In addition, you can grow your nest egg tax-deferred and guarantee a reliable income stream when you retire by investing in tax-deferred accounts sold by insurance companies.

Moreover, you decide when you’ll benign receiving these payments.

With an immediate annuity, monthly payments begin immediately following a lump sum payment — usually in the range of $100,000 or more. Payments on a deferred annuity generally start after the contract is signed so that you can make smaller contributions throughout years or even decades. This type of annuity is actually similar to your 401(k) contributions.

What is a 401(k)?

In a 401(k), qualified employees of an employer can invest and save for the future, which like annuities, is tax-deferred. However, a 401(k) is not available to everyone. 401(k)s are only available if the company you work for offers them.

In short, a 401(k) plan is tied to an employer, while an annuity is not.

But, what happens if you switch jobs? Of course, you could leave the annuity in place. But, it may be better for you to roll the money over from the old 401(k) into the 401(k) of your new employer or into an IRA.

The decision to contribute to your 401(k) and how much you will contribute each paycheck is entirely up to you within the parameters of the plan and IRS contribution limits. Employers may also contribute to the plan, but it’s entirely up to them.

401(k) contributions are deducted before taxes, so you lower your income tax bill by contributing to one. In addition, the money you contribute will not be taxed until you withdraw it from the plan, just like with annuities.

Fixed Annuities vs Variable Annuities

How Are Annuities and 401(k)s Similar?

A 401(k) and an annuity share several characteristics that make them both attractive options for saving for retirement. However, they also have their fair share of drawbacks.

  • Long-term savings. Contributions to deferred annuities and 401(k)s can be made gradually. That means you can make a series of payments instead of one lump sum payment.
  • Tax-deferred growth. You’ll only pay taxes when you take withdrawals from a traditional 401(k) or annuity. In other words, the gains you make in both are tax-deferred.
  • Early withdrawal penalties. The IRS generally imposes a penalty on withdrawals before you turn 59 ½ (usually 10% of the amount withdrawn, plus applicable taxes). However, if you take substantially equal periodic payments (SEPPs), you can make a penalty-free early withdrawal from an annuity or 401(k). When you reach 59 ½, you can begin withdrawing money from either account. Depending on your situation, you may be able to take what you need to supplement your retirement and Social Security. Unlike annuities, when your 401(k) savings are depleted, they’re gone.
  • Assets pass outside of probate. By naming a beneficiary on a 401(k) or annuity, those assets are not subject to probate and can be directly transferred to the named beneficiary.

How Are Annuities and 401(k)s Different?

A 401(k) plan is only available to employees whose employers offer them. On the flips side, anyone can purchase an annuity. Contributing to a 401(k) is impossible if your employer doesn’t offer one. However, self-employed individuals can set up their own 401(k)s.

Another key difference? Fees.

Checking the fees, you pay for your 401(k) is typically relatively easy. First, request an explanation of any fees charged to your account from your plan administrator. It’s often more challenging to figure out how much annuity fees will cost you. Additionally, fees for annuities, benefit riders, and more may be steep.

Other distinctions between annuities and 401(k)s include;

Contribution limits.

With an annuity, you can invest as much money as you want. However, there is a 401(k) contribution limit. As of 2022, the individual contribution limit is $20,500 (or $27,000 if you’re 50 or older), while the combined employer and employee contribution limit is $61,000 (or $67,500 if you’re 50 or older).

Guaranteed income.

Annuity payments can be locked in for life depending on the type of annuity and its riders. Unfortunately, 401(k)s don’t generally have such lifetime withdrawal options.

Sales commissions.

A 401(k) plan does not pay employers any compensation for employee participation. Agents, however, are paid commissions for selling both 401(k)s and annuities to your employer. As such, you may be talked into a program that doesn’t work for your retirement needs. These are both excellent options — just be sure to do your due diligence.

Investment choices.

You’re permitted only specific allocations within a 401(k) plan that are governed by the plan. But, you can customize your annuity to include the investment options you want.

Principal access.

It’s possible to avoid early withdrawal penalties by taking out a loan when you need to liquidate your 401(k) early by repaying the funds within a reasonable time frame, typically five years.

However, a surrender charge can be imposed on annuities if you withdraw large amounts earlier than expected. When you have to access your funds early, you may actually lose some of the money you initially invested, along with income taxes and IRS penalties. In some cases, you may be able to borrow after some cash value has built up in an annuity.


A 401(k) has no limits on your investment gains or losses, so you can earn or lose whatever you want from your investment. However, many annuities have both gains and losses capped. While this protects your capital, it leaves you exposed to some of the ups and downs of the market.

Why a Retirement Annuity Is Better Than a 401(k)

An annuity and a 401(k) plan can provide long-term savings, tax-deferred growth, and a way to pass assets to beneficiaries outside of the probate process. However, a financial advisor might recommend investing in an annuity later in life, especially if you’re still working and haven’t maxed out your 401(k).

If you’re in such a scenario, annuities tend to have a leg up over 401(k)s mainly because they combine investment and insurance elements.

Another perk? The variety of annuities available lets you select the one that best suits your needs. At their most fundamental level, annuities fall into three categories;

It’s also worth noting that you typically make the purchase after-tax, so you don’t owe taxes on the principal when you use it as income. In addition, earnings from your investment also grow tax-deferred, so you get a boost while the annuity is in its growth phase.

An annuity is one of the three sources of protected lifetime income (pension and Social Security are the other two) that will provide you with guaranteed payments, often monthly, for the rest of your life. In other words, you’ll continue to receive payments. And, this is true even after your account balance has been exhausted.

But don’t just take my word for it. A study from 2021 suggests annuities might be a good alternative to stocks for retirement. “We find strong evidence that households holding more of their wealth in guaranteed income spend significantly more each year than retirees who hold a greater share of their wealth in investments.”

The Bottom Line

Are annuities perfect? Of course not.

Nevertheless, an annuity’s ability to generate retirement income becomes even more critical when you consider the possibility of outliving your savings. The income stream from an annuity lasts for as long as you live, so you can enjoy peace of mind when it comes to your golden years.

At the same time, depending on your circumstance, you may opt to use both. An annuity will ensure a minimum fixed income. As for the rest of your savings? It will remain in a 401(k) to continue to grow tax-deferred with higher returns.

Do you still have questions? It’s best to consult with a financial professional. They can crunch the numbers for you and determine what you’ll need versus what you would like. Most importantly, then help you determine which retirement option works best for you.

The post Why a Retirement Annuity is Better Than a 401(K) appeared first on Due.


Identity in the metaverse: Creating a global identity system



With the advent of the metaverse, the need for a global identity system has become apparent. There are many different ways to create an identity in the metaverse, but no single system is universally accepted. 

The challenge is usually two-fold: first, how to create an identity that is accepted by all the different platforms and services in the metaverse, and second, how to keep track of all the different identities a person may have.

There are many proposed solutions to these challenges, but no clear consensus has emerged. Some believe that a single, global identity system is the only way to ensure interoperability between different platforms and services. Others believe that multiple identities are necessary to allow people to maintain their privacy and security.

The debate is ongoing, but it is clear that the need for a global identity system is becoming more urgent as the metaverse continues to grow.


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In this article, we will explore the various options for creating a global identity system in the metaverse. We will discuss the pros and cons of each option, and try to identify the best solution for the future.

Option 1: A single global identity

The simplest solution to the problem of identity in the metaverse is to create a single, global identity system. This would be a centralized system that would be responsible for managing all identities in the metaverse. 

The advantages of this approach are obvious: It would be much easier to keep track of identities, and there would be no need to worry about different platforms and services accepting different identities. In addition, a centralized identity system would allow for better security and privacy controls, as well as the ability to track identity theft and fraud.

However, this approach also has several disadvantages. First, it would be very difficult to create a global identity system that is accepted by everyone. Also, a centralized system would be vulnerable to attack and could be used to track people’s movements and activities. Third, it would be difficult to protect the privacy of users in a centralized system.

Option 2: Multiple identities

Another solution to the problem of identity in the metaverse is to allow each person to have multiple identities. This would mean that each person could have one or more identities that they use for different purposes. 

One of the main advantages of this approach is that it would allow people to maintain their privacy and security. Each person could choose which identity to use for each situation, and they would not have to worry about their entire identity being exposed. In addition, this approach would be more resilient to attack, as it would be much harder to take down multiple identities than a single one.

The limitations of such an approach would be that it could be difficult to keep track of all the different identities, and there would be no guarantee that different platforms and services would accept all of them. In addition, multiple identities could lead to confusion and could make it more difficult for people to build trust with others.

Option 3: A decentralized identity system

A third solution to the problem of identity in the metaverse is to create a decentralized identity system. This would be an identity system that is not controlled by any one centralized authority but rather is distributed among many different nodes. 

This might seem like the ideal approach, since decentralization is a common theme in the metaverse. However, there are still some challenges that need to be overcome. For instance, it would need to be ensured that all the different nodes in the system are properly synchronized and that the system as a whole is secure. In addition, it might be difficult to get people to adopt such a system if they are used to the more traditional centralized approach.

One solution would be to get the nodes in the system to be run by different organizations. This would help to decentralize the system and make it more secure. Another advantage of this approach is that it would allow different organizations to offer their own identity services, which could be more tailored to their needs.

Another would be to incorporate an edge computing solution into the system. This would allow for more decentralized processing of data and could help to improve performance. It would also make the system more resilient to attack since there would be no centralized point of failure.

The best solution for the future of identity in the metaverse is likely to be a combination of these approaches. A centralized system might be necessary to provide a basic level of identity services, but it should be supplemented by a decentralized system that is more secure and resilient. Ultimately, the goal should be to create an identity system that is both easy to use and secure.

The ideal identity standards of the metaverse

Now that we have explored the various options for identity in the metaverse, we can start to identify the ideal standards that should be met by any future global identity system. 

It is no easy task to create a global identity system that meets all of the criteria, but it is important to strive for an ideal solution. After all, the metaverse is still in its early stages, and the decisions made now will have a lasting impact on its future. 

Current iterations of the metaverse have used very traditional approaches to identity, but it is time to start thinking outside the box. The ideal solution will be one that is secure, private, decentralized, and easy to use. It will be a solution that allows people to maintain their privacy while still being able to interact with others in the metaverse. 

Most importantly, it will be a solution that can be accepted and used by everyone. Only then can we hope to create a truly global identity system for the metaverse.

The bottom line on identity in the metaverse

The question of identity in the metaverse is a complex one, but it is an important issue that needs to be addressed. 

The challenges associated with creating an implementation that is secure, private and decentralized are significant, but they are not insurmountable. For one, it will be important to get buy-in from organizations that have a vested interest in the metaverse. These organizations can help to promote and support the adoption of identity standards. 

It is also important to keep in mind that the metaverse is still evolving, and the solution that is ideal today might not be ideal tomorrow. As such, it will be critical to have a flexible identity system that can adapt as the needs of the metaverse change. 

Ultimately, the goal should be to create an identity system that is both easy to use and secure. Only then can we hope to create a truly global identity system for the metaverse.

Daniel Saito is CEO and cofounder of StrongNode

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Why You Should Start a Business Only While You Have a Job



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