Are Annuities Right For You?

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Buying annuities could be a great option for you if you want a reliable source of income when you reach retirement. Annuities are mostly purchased by those who need help managing their income in retirement because they offer a set amount of money to the owner each month. An annuity owner often has a unique commitment to their annuity purchase, with 93% reporting they still own their first one.

What are Annuities? These are insurance products that pay out a set income once the payout period begins (usually when the owner is 59 1/2). Those who are investors will usually purchase an annuity at some point in their life. You can choose to either receive a payment every month, every quarter, once a year, or even an annuity lump sum payment is an option.

Benefits of Having an Annuity: Understand that an annuity is not for everyone. Eight out of 10 non-qualified annuity owners have an income below $100,000, while most non-qualified annuity owners are female because they cannot make the initial investment.

They can also be a poor choice for people because they come with high expenses. Variable annuities, for example, are not suitable for meeting short-term goals because substantial taxes and insurance company charges may apply if you withdraw your money early.

Types of Annuities: If you believe an annuity is the best retirement option for you, then you have a few options to choose from: Deferred and immediate annuities.

Deferred means your money is invested for a period of time until the payout period begins in retirement. Immediate is when you make the initial payment and start receiving payments as soon as you’ve made the purchase.

There are also fixed annuities and variable annuities, depending on whether or not your payment is a fixed sum, tied to stock market performances, or both.

Selling Annuities: After purchasing an annuity, some people realize this is not the option for them. Others may come into some financial trouble and will need immediate cash. Settling a debt or paying a second mortgage are two common reasons why people sell all or part of their investment.

If you owned your annuity for less an seven years, you will most likely need to pay a surrender charge that starts around 7% if you sell within your first year of owning the investment. That starting number will decrease every year until after seven years when it is no long applicable. You will also need to pay an income tax on any investment earnings you’ve made while owning the annuities. If you are younger than 59 1/2, you will also need to pay a 10% early withdrawal penalty which goes to the IRS> Helpful info also found here.

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