Let’s Talk About Annuities: Are They Right For You?


When it comes to making financial decisions, many people rely on the help of their financial advisors to make those decisions. Annuities, however, are not that complicated and don’t need the help of a financial advisor. They might seem complicated to understand at first, but they’re actually very easy to understand. The question when you know what an annuity is then becomes whether or not it is the right financial move for you. There are questions you should ask, considerations you should make and, of course, personal feelings to consider before you make any financial decisions throughout the course of your life. We love the idea of a simple annuity for most people, but it’s not right for everyone. Like anything else in life, these come with both pros and cons, and only you can make the decision as to which items are pros and which are cons in your life. We’re here to help you make that decision a bit simpler so that you aren’t left wondering how to handle your own finances in times of need.

What is an Annuity?

Essentially, an annuity is a fixed amount of money that is paid to someone during the year. For example, you can leave annuities to loved ones in your will or you can obtain investment policies that pay you annuities. Your choice is yours, but there are a few types of different annuities available to those who want or need them, and you are left with the decision as to whether or not this type of investment is for you and if it is, which type is right for you?

Immediate and Deferred Annuities

These are just what they sound like; benefits that pay you right now or that pay you later on down the road. You can choose between the two, but typically it’s the latter that pay off the most. The amount of money you get from your annuities depends largely on how much you put into them, which means years of contributing can make them more beneficial. If you choose to go with annuities that begin to pay you immediately, you will need to understand that your payments are based on several factors, your gender and age being two of those important factors. Additionally, the amount of money you invest, the earnings over the years are also used to consider what you will be paid beginning now.

If you choose to defer payments, you can pay a lump sum at first or you can pay monthly for a certain amount of time to fund your annuities. You can also choose when you want them to take effect and when you want them to start paying you. It could be months, years or any length of time you see fit and appropriate for your age, health and current financial situation.

Fixed or Variable

Again, these are just like they sound. You can choose a fixed rate annuity that pays a specific amount over time or you can choose a variable annuity that pays you depending on the performance of your portfolio. It’s all up to you, and whichever is better for you depends on your own personal financial situation and other factors. We would not presume to advise you which is more beneficial or preferable without knowing your personal financial information – and even then, we aren’t experts.

Is an Annuity Right for You?

Like anything else in the world, there are pros and cons associated with annuities. Your job is to determine which of these are more beneficial and which are more harmful to you and how you want o proceed based on that information. Once you are fully aware of how your decisions will affect your finances, you can determine whether or not an annuity is the right choice for you.

One of the biggest pros of an annuity is that there are many tax savings associated with this type of investment. For example, you do not have to report any earnings from your annuity on your income taxes each year, even if you accumulate a lot of earnings. One of the pros, however, is that if you purchase an annuity and then die before it’s been paid out, you will never see that money. And we aren’t talking that you won’t see that money because you’re dead. We mean that your estate will never see a dime since the money reverts back to the insurer. For example, if you purchase a $100,000 annuity and you get 5 payments from it, the rest will go back to the insurance company if you were to pass away before any more of it was distributed to you. Your family will not get this money, and it’s essentially a waste at this point. It’s a risk that consumers have to consider.

Now, there are some annuities available from some insurers that will allow you to choose a person to become the beneficiary of this policy. They will have to adhere to the same terms as you, however, so they may not get those funds right away either. Additionally, once this person passes, there is no way the money will go to anyone else so it still goes back to the insurer. Additionally, all the tax benefits that come with an annuity are then considered null and void when passed on to a beneficiary, which is something you might also keep in mind when purchasing one of these policies.

The good news is that anyone can cash in an annuity at any time. The downfall to this, however, is that once you cash it in, you are subject to a fee that is based on several factors, including the value of the annuity. It could work out for you that your annuity surrender is very expensive and not worth paying to cash out the balance. Again, only you are aware of your financial need, so only you can decide which is right for you and which is not right for you.

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