The Ultimate Guide To Annuities

Your One-Stop Resource for Retirement

What’s an annuity?

The first thing to do is to learn the concept of an annuity. An annuity is a contractual insurance product that, as we said, are sold by financial institutions. The annuities are designed to provide a steady income for a period, therefore they are such an important...

What are the different types of annuities?

The first thing to do is to learn the concept of an annuity. An annuity is a contractual insurance product that, as we said, are sold by financial institutions. The annuities are designed to provide a steady income for a period, therefore they are such an important...

Are there tax benefits to annuities?

There are. The money we invest into annuities will be tax-deferred. While withdrawals will not be taxed, the earnings will be at our regular income tax rate.

What are the advantages of annuities?

Annuities offer several financial advantages, but no doubt that the biggest benefit is that the allow us to save bigger amounts of money and postpone taxes. It will also let us have more control over our investment. We can set a payment schedule or we can choose to...

What are the disadvantages?

Annuities are usually sold as big moneymakers while their obligations at the bottom in small letters. While annuities give us great advantages for our retirement plan, we also need to consider the responsibilities that we will have for this kind of investments and how...

Do all annuities have high fees?

No. We can get direct-sold annuities from companies that won’t charge sales commissions nor surrender charges because there wouldn’t be any insurance agent involved. Some of the firms that will sell low-cost annuities are Fidelity, Vanguard, TIAA-CREF, T- Rowe Price,...

What investment options do annuities have?

The investment options will always depend on the type of annuity we bought. If we got a fixed-rate annuity we don’t get to choose any investment because it would be entirely made by the insurance company. But if we got a variable annuity we can decide how to invest...

What payout options do I have?

The conditions that will define our payments will be settled when we invest in our annuity. Usually the options are: Income for a guarantee period, where a fixed amount is fixed for a time span. If we die before the end of that time, the beneficiaries will continue to...

What if I decide to withdraw the money?

Withdrawing money from an annuity is a decision that shouldn’t not be taken lightly. This kind of movements will generate high costs that you need to consider in your retirement plan. The amount that you will be required to pay will depend on a few factors, for...

How do I know if buying an annuity is right for me?

Before buying an annuity, you need to consider if it’s really the best option for your plan. Usually this strategy comes after common investments, such as 401(K) or individual retirement accounts. If you have set aside the money for your retirement, the purchase of an...

Should I hold an annuity within my IRA?

No. Though there are some exceptions, this strategy is usually ineffective mostly because one of the biggest advantages that annuities offer is that our money will grow tax-deferred and it wouldn’t make any sense to buy one to hold it in an individual retirement...

What happens to my annuity after I die?

This will depend on the type of annuity you bought and how you set the payments to be made. In some cases, if you name a beneficiary for your annuity, he or she will receive the payments after when you die. But other options will only pay while you’re alive. As we...

How do I know the company will honor my future payments?

This is a sensible question to have in mind while we consider the idea of buying an annuity. If the company that sells you an annuity goes down, it’s possible that you lose your money. Think about it this way: When you buy an annuity, you’re given your money today to...

Should I exchange my existing annuity for a new one?

A general rule: Never rely entirely on the salesperson’s arguments. You always need to check all the sales document to know the potential risks and fees. Usually when the idea of exchanging our existing annuity is suggested is because of the big commissions that this...

What if I bought an annuity I no longer want?

If you owned the annuity for less than 7 years you probably will need to pay a surrender charge. This charge will vary depending on the time you have with the annuity, it usually starts with 7% and it decreases 1% every year until it disappears after seven or eight...

What is a fixed annuity?

Usually this type of annuities works as certificates of deposit (CD) issued by insurance companies. Like CDs, fixed annuities pay guaranteed rates of interest, usually higher than average bank CDs. Fixed annuities will be deferred when they accumulate rates of...

What are its advantages?

The biggest advantaged of fixed annuities is that they pay guaranteed rates of interest that will be tax free until you withdraw it and offer low investment minimums -$1,000 to $10,000. These qualities make fixed annuities an appealing option to investors that want an...

What are its disadvantages?

Despite its benefits, there are a few disadvantages to consider. The fixed annuities rates can be fixed for a determined period and then drop when this period ends. If you don’t like the new rates and decide to take your money out you probably will have to pay...

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