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Tips before Investing In Annuities

Tips before Investing In Annuities

Many things require a guaranteed source of income for life. It offers protection against the lack of money and a more exceptional ability to overcome the rises and falls of the stock market. You can also improve your mood: surveys have shown that retirees with a predictable source of funds, such as social security or pensions, are happier than retirees with no guaranteed income.

Do you not have a pension? Do you want extraordinary income in addition to what you can get from social insurance? Here is an annuity. Few things to know about annuity before you buy one.

They Are Simple And Complicated

Looking at the basics, an annuity is an agreement with an insurance company. Give a sum of money; Instead, collect the guaranteed income to help you with your pension. The amount of your monthly allowance depends to a large extent on your age, gender, and interest rates when buying an annuity. Today, for example, a 65-year-old man who pays $100,000 for a single-premium immediate annuity (also known as a lifetime annuity) can receive about $ 565 a month for life; for the corresponding amount, a 65-year-old woman could earn $ 542 a month. (Insurers say that women's payments are lower because of longer average life expectancy).

But the rents are not all basic. They are available in many varieties: variable, fixed, indexed capital, etc. Some may help to defer taxes; others allow people to invest in stocks and bonds while protecting themselves against sudden losses.

Ask For A Commitment

Although the guaranteed income is good, you can avoid linking your money to an annuity. "The only thing consumers earn with annuities is that they give their money to others. And what people prefer is to give up control."

The 65-year-old, at 90, will receive about $170,000 over the years for his $100,000. But if he had died at the age of 70, he would have raised about $34,000, and no heir would have received anything.

Avoiding this result is possible at a price. The man could buy an annuity with a guarantee of the payment of at least 15 years, even if he had died before that date. In this case, the beneficiaries will pay for the remaining 15 years, but the monthly payment for the first day's pension would be less than the lifetime rent without this guarantee.

Even voluntary commitment poses dangers. Money allocated on an annuity is money you cannot get, or you can access it at a high cost in an emergency. 

You Must Know What You Want

Sometimes annuities are sold as a source of retirement income and sometimes as a means of investing in the market and administering taxes. Decide why you can buy one. Do you want income now (and so you want immediate income) or later (deferred)? Do you want a predictable payment (fixed income) or payments that increase or decrease with the financial markets (variable)?

If you are about to retire, and your goal is to create a guaranteed income similar to retirement, you can ignore the noise, and you can buy an immediate income from a single premium.

If your goal is to invest, you also have other options. The fastest growing rent today is a fixed index annuity. Put your money and get a linked (but not necessarily identical) performance of a barometer such as Standard & Poor's 500 indexes of most US stocks. In general, your investment is protected if the index falls, while your income may be lower than the actual index.

With variable income, you can choose from a menu of equity funds and bonds and let the money grow with deferred taxes. You can add resources that protect your manager or allow you to block a minimum income, usually with the so-called guaranteed lifetime withdrawal benefit (GLWB). And in most cases, your successors can inherit a death benefit.

Security Has A Cost

The cost of this protection can be high and difficult to decipher. The base rates, plus the cost of an IBC broker, can go up to 3% per year. For example, if you invested $6,000 a year in a variable annuity at 7% per year, deductions for expenses would be approximately $75,000 in your account after 10 years. But with a collection of mutual funds, say 0.2% per year, the same market trend would leave $87,700 after being spent.

Fixed rate annuity rates (sometimes called "stock indexes") are another cost. If an insurer limits the annual income of an S & P 500 income to 6%, this is the maximum earned in a year, even if S & P earns 19% (as in 2017).

And if you want to go out of a fixed income or a variable rate, you can pay a higher "redemption rate," especially in the first years after the purchase.

Nevertheless, a guaranteed benefit annuity may be a good option if you cannot take risks. "The person who buys only CDs and bonuses earns variable income from an IBC broker". "It's possible to overtake CDs and bonuses."

The Salesperson - and the Seller - Matters

Choose an insurer with a high score (for example, at least A - rated by A.M. Best). "All you need to know is credit evaluation and payment."

Comparisons are more difficult for a fixed rate annuity or a variable annuity, but make sure you understand the rates and recovery costs you may experience. Vanguard and Fidelity offer relatively weak variables.

Final Words 

If a financial consultant suggests buying an annuity, ask yourself what the alternatives are. "Variable rent is the only way to lose income."

Unifirst Financial & Tax Consultant
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