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  • Things to Watch Out For When Buying an Annuity

    When you get started on the course of wanting to buy an annuity to help yourself achieve some form of guaranteed income for life and also protect your loved ones, it’s important to know the problems and concerns about annuities and any financial plan that you may make. After all, the future is never certain. You can use all the stats you want to, but reality sometimes laughs at statistics.

    Here are some things to watch out for if you are considering purchasing an annuity.

    Determine If an Annuity Is Right for You

    If you are not healthy, you may not want to buy an annuity because they are most valuable when you live a long time. In fact, for people who will not live past 60, there is no reason to buy an annuity. Slick insurance salespeople might try to convince you of their stability, and that part is true, but the benefits are only there if you live past 60.

    Buying from the Wrong Person or Business

    Make sure that you do some research on the best places to buy annuities. You don’t have to go directly to just any insurance agent. Check with your financial institution first. For example, credit unions like USAA offer their members generous options without too many fees, and their salespeople don’t get a commission but a salary.

    Not Having a Thorough Understanding of Fees

    There are going to be some fees, but you should seek to avoid high fees from unscrupulous salespeople. Instead, research what the fees typically range and then try to ensure they are the lowest you can get. Plus, always add up your total potential fees so you can get a more realistic picture of what fees cost.

    Get an Understanding of the Jargon before You Shop

    When you go talk to an insurance agent to buy your annuity, you will probably get overwhelmed with the lingo. They are going to speak jargon to you. It’s best for you if you research the terms beforehand so that you understand what they are talking about. This way you won’t need the agent (who is going to earn money from the sale, by the way) to explain it to you.

    Consider Inflation When You Buy Your Annuity

    It might seem like a great deal to put your million dollars into an immediate annuity so that you can get $65,000 a year for life while keeping your money safe and tax-deferred. However, will that $65,000 give you the kind of life you hoped for or do you need more than that to make it work for you based on predicted inflation and expenses you may have in 5, 10, 20 years or more?

    Know Why You’re Buying an Annuity

    It’s imperative that you truly understand why you want to buy an annuity and what you want it to do for you. That way, you can talk to the agent about what you want. For example, if you want to ensure your spouse has a lifetime income if you die, make sure to tell the agent that so that they can write a policy that offers what you want and need.

    The truth is, if you really pay attention, do your due diligence, and know what your goals and objectives are for buying an annuity, you should be very successful in getting what you want. Do your research, choose the right place to buy, and know what you want. You’ll do great.

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  • 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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  • Four Different Types of Annuities

    Annuities are periodic payments paid to you, usually on a monthly basis and often for life. They can be left to your loved one in the event of your death. Once fully funded, the annuity pays a set amount each month for either the life of the contract or your life. The remaining funds can be left to your spouse, child, or other loved one in a lump sum or a monthly payment. There are four types of annuities you need to know about.

    Immediate Annuity

    This type of annuity is usually used by someone who is already in retirement, getting ready to retire, or just came into a windfall such as an inheritance or lottery and they want to protect their money while providing an income for themselves each month.

    An immediate annuity needs a large investment to be beneficial. The average age someone buys this type of annuity is usually between 65 and 70 years old. If you had a million dollars cash laying around and you put it into this type of annuity, you would immediately start collecting monthly payments that would total about $65,000 a year for 20 years (or life depending on the type you purchase). You’d earn your principal back in about 15 years.

    Deferred Income Annuity

    This type of annuity can be had for as little as $5,000 to $10,000. Then you can add to it every month until you retire. The calculations for payments are made based on the input you promise to send and your initial investment, plus interest, subtracting fees, and other costs.

    Many people who have maxed out their 401K and IRA contributions, plus already have plenty of access to other cash for emergencies, like to purchase this type of annuity to ensure a set monthly payment for their retirement years to offset risks from other investments.

    Fixed Annuity

    The returns increase in value based on a set interest rate that is known at the time of the purchase. Usually, this is the type of annuity you get when you set up a deferred income annuity. They have better interest rates than CDs (certificates of deposit), and all the interest you earn is tax-deferred until you start receiving payments.

    Normally, you don’t have to choose your exact payment dates until closer to your retirement. At that time, they will work out the payments that you’ll receive after you stop paying into the fund. However, you will have an idea of what you’ll get based on interest rates, the payments you pay in monthly, plus when you start taking payments.

    Variable Annuity

    This type of annuity’s interest rate is tied to another fund, such as the S&P 500. It’s a lot riskier, but you can end up with more returns and still get some protecting regarding your principal. Your income is still tax-deferred, and you still have a minimum monthly guarantee. In some cases, you can also take some cash, and you can assign a death benefit to your relatives.

    Now that you know this information about the four different types of annuities, do you think they are good financial options for your retirement income? The ability to put money away in a safe place while also collecting a monthly income is special, because most financial products don’t offer this facility. There are more types of annuities than these four, but these are the main ones. Each institution has different plans and combinations of choices.

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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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