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Tag: Annuities

  • Ten Tips on Finding the Right Advisor

    Finding the right advisor or agent to sell you an annuity is going to make all the difference to your success. Understand that anyone who can pass a test to sell insurance can sell most types of annuities. They may have zero understanding of household finance, retirement needs, or much of anything about money. They simply passed an insurance test, paid a fee, and now they can try to sell these policies. Because of this, please do your due diligence finding the right advisor.

    1. Ask Friends for Advice – Don’t just ask any friend; ask the friend that you know is smart with their money. You don’t want them to send you to a scam artist, so ensure that you also ask your morally upstanding friends who they use.

    2. Research Any Agent Leads – When they give you names of people or companies, you want to research them before you talk to them. Today most agents will have LinkedIn profiles, Facebook pages, and other online activities that enable you to find out what others are saying.

    3. Interview Agents You Like – When you find someone you think looks good, don’t snag them yet. Instead, set up several different interviews. Don’t make any decisions at that moment. Interview them and go home and give it thought before choosing. Maybe none are right, and you need to keep looking.

    4. Test Their Insurance and Financial Knowledge – When you have people to interview, test them on their knowledge of insurance, annuities, and financial knowledge by asking questions you already know the answer to based on your studies. Ask each candidate the same questions.

    5. Ensure They Understand Your Financial Needs – It’s important that the person you purchase an annuity from understands your true financial needs and foresees issues that you don’t see. They should bring up reasons not to buy an annuity just as they give you reasons to buy one.

    6. Check Their Education Level – While college isn’t a requirement to sell insurance, check other certifications that they have. What financial planning courses have they taken? Do they have certifications that make them stand out?

    7. Check Their Background – You want to ensure that they are not a criminal or someone who has been involved in any scams. It’s as simple as googling them and looking up their name online to find out if there are complaints. They should have the proper license for their state, and that should be listed and verified by you personally.

    8. Talk to Their Clients – Ask them to give you a couple clients who would be willing to talk to you about their experiences with the person. While you do want to know what others think, they’re going to pick people they know love them, so try to listen carefully.

    9. Check the Insurance Company’s Ratings – They probably work for an insurance company in order to sell annuities. Check the overall ratings of that insurance company to ensure there are no issues or outstanding matters.

    10. Find Out How They Are Paid – Most insurance agents get paid only by commission, but a few companies do pay agents by salary, which is preferable. If someone sells by commission, they might just want to sell you a product you don’t need. However, not everyone who works by commission will do that.

    Getting advice from friends and family that are financially smart, and then doing your research on any advisors or agents that you might hire, is imperative. You want to work with someone who understands your financial needs, goals, and objectives. If they don’t and are only focused on making the sale to get their commission, you can find yourself making a big mistake when you fall for the sales pitch. Instead, know what you want, why you want it, and seek the right person to buy it from.

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  • How Do Annuities Work?

    Many people want to set themselves or their family members up to have an income for life that cannot be taken away. One of the ways that they do that is by setting up an annuity. An annuity is a periodic payment that you either receive or that you pay into.

    A couple of things you likely pay now are your mortgage and insurance payments, both of which are considered annuities. When you get a monthly payment from an investment program, that can also be considered an annuity, and that is the type we are talking about here. The main thing to understand is that to be an annuity, there needs to be set payments regularly.

    Buying an Annuity

    You can either make a lump sum payment to your insurance company, or you can pay a down payment and then add to the principal every month. Depending upon the type of annuity, the insurance company may invest it safely. Whenever you see the words “safe” and “investments”, you can assume a low return. However, for the low return, you get an income for life or for the term of your contract.

    Collecting the Payments

    Once you decide to retire per the contract, you will then change the plan from its growth period or “accumulation period” into the payment or “amortization period.” You can get those payments for life or the term of the contract, and you can also assign a beneficiary to your annuity in the case of your death.

    Types of Annuities

    There are three types of annuities: fixed, variable, and indexed. A fixed annuity guarantees that you’re going to receive a set amount of interest and a set guaranteed payout either for life or for the term you set for the annuity. A variable annuity lets you choose a higher risk level if you want so that you can get better payouts. Having said that, you can also lose money. An indexed annuity sets your return to the market index (S&P 500). If your fund does well, you can earn more, but there is more of a risk too.

    When You Get Payments

    Getting your payments depends on whether you purchased an immediate annuity or a deferred annuity. The immediate annuity can give you a monthly income right now, while keeping your money in a safe place and helping you budget. The deferred annuity is one in which you start collecting payments later in life.

    As you can see, while it appears complicated, an annuity is a safer form of investing money to help ensure you an income for life. Plus, you may also be able to ensure your spouse’s income for life too even if you die. But remember, you’ll be penalized for taking any cash out of the account, so you need to make sure that you have emergency savings to access elsewhere and not just the cash in your annuity.

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  • Common Questions to Ask about Annuities

    As you start your research about annuities as a form of retirement investing, many questions come up. These are some common questions that you should ask about annuities before you even think of buying one.

    * When Should I Buy an Annuity? – The most common time to buy an annuity is sometime after age 50, usually around age 60. In fact, many financial planners do not recommend buying an annuity until you’re over 60, with a few exceptions like protecting a large windfall or leveraging the money while you invest in other high-risk options like stocks.

    * Are Annuities Right for Everyone? – The short answer is no. Some people will not benefit from an annuity. Anyone who doesn’t expect to live a long life probably isn’t a good candidate for an annuity. The idea of an annuity is to provide a lifelong, guaranteed income that is safe. Because it’s a more reliable way to provide lifelong retirement income, it’s less profitable than other types of investments. In fact, most people don’t consider an annuity an investment but rather, an insurance policy.

    * What Happens to My Annuity When I Die? – It depends on your contract. However, you can tell your agent at the time of purchase that you want to protect your spouse or another loved one with your annuity if you die. They will let you know how this works and if there are additional costs or considerations.

    * Can I Sell My Annuity Contract? – You can, but you won’t end up making any money off the deal if you do. Sometimes people do sell their contracts to get a lump sum payment that they can use for something like cancer treatments. However, this is a poor use of an annuity no matter what the salesperson tries to tell you. It’s just as bad as a reverse mortgage.

    * Will My Heir Have to Pay Income Taxes If They Collect on My Annuity after Death? – Yes. While you may or may not pay income taxes on your payments received (depending on your contract), all the money your heir receives will be taxed as ordinary income.

    * What Are the Most Common Fees Related to Annuities? – Some common fees are mortality and expenses, administrative fees, surrender charges, and investment management fees. There may be other fees than this, so be sure to ask before you sign. In fact, try focusing on the total amount of the fees rather than each individual fee so you can keep it straight.

    * Do I Pay a Penalty for Early Withdraws? – Yes. In some cases, you cannot withdraw the money at all. You need to pay attention to your contract. Make sure you have emergency funds and other savings to access if you need it. An annuity is not available money for you to spend, and it is costly to use it other than for your regular payments.

    * When Can I Start Collecting Payments? – Depending on your contract, you will collect payments when it states, but, in most cases, you cannot start collecting until you’re 59.5 years old. Some might be later if you bought it later.

    * Where Do I Buy an Annuity? – To sell annuities, an agent needs to be licensed to sell life insurance in your state. Some insurance companies like USAA that are also financial institutions offer annuities, but you can call almost any life insurance agency and talk to them about annuities.

    If you think of other questions about annuities, make sure you get answers to your questions before you buy. Try writing down your questions before talking to an agent about buying an annuity. That way, you won’t forget anything that you need to ask to make an intelligent choice.

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  • Are Retirement Annuities Right for Me?

    When you are planning your retirement, there are many investment opportunities to help you ensure an income after you stop working. One type of investment is called an annuity. This type of investment is usually purchased either in a lump sum or via an investment plan where you put money into the annuity over time for many years. The minimum investment is often 5 to 10,000 dollars to get started. So, how can you know that a retirement annuity is right for you?

    How Old Are You?

    Most financial planners believe that between the age of 45 and 55 is the perfect time to purchase an annuity. However, if your family typically has a very long lifespan, it’s better to wait longer, saving the money and putting the lump sum into an annuity when you’re around 70 years old to qualify for the maximum payout each month.

    Are You in a High-Income Tax Bracket?

    If you are a high-income earner and pay the maximum in income taxes, this is a great way to defer taxes on the money until retirement when technically you may be making less income due to not working so your tax liability will go down. This can be a very good thing to do to save money on taxes.

    Are Your 401K and IRA Contributions Maxed Out?

    Before considering investing in an annuity which doesn’t have as good of a rate of return as other investments (due to the safety of it), ensure that you are first maxing out your 401K contributions. If you do have funds left over for investing, that is a good time to consider a retirement annuity.

    Do You Have Consumer Debt?

    If you have consumer debt, you will earn more on your dollar if you just pay that off instead of investing in an annuity – or anything else for that matter. Most credit cards are about 14 percent interest today. You’re not going to earn 14 percent interest on any other type of investment.

    Can You Live without the Cash in an Emergency?

    If you don’t have other savings to use in an emergency, it’s not a good idea to invest in an annuity, even if you will receive income from it right away. The main reason is that the penalties are high for trying to access the cash in the account and it’s not worth it at all.

    Are You Willing to Contribute for Years?

    You need to invest a lump sum of at least $5 to $10,000K to start an annuity, and then usually contribute equal monthly contributions to build up the annuity until retirement. If you’re not willing to build up the fund to at least $100K, you may be wasting your time with the annuity.

    Do You Have a Lump Sum You Want to Defer?

    If you receive an inheritance, a lottery winning, bonus or other lump sum, especially if it’s unexpected, you owe no consumer debt, and are already maxed out on other investments and savings, then an immediate annuity might be a really good choice to keep the money save and give yourself an income for life at the same time.

    Finally, you will pay ordinary income tax on the earnings portion of your payments. If you’re ready to do all that and you have decided that an annuity is for you, then that’s great. You can find out more about annuities from your financial institution or insurance agent.

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