When to Sell Your Annuity

by JJ

What are annuities?

An annuity is basically a contract established between an insurance company and a buyer. The insurance company makes a promise to that buyer to do something profitable with their funds such as increase it or pay it out over a certain period of time. Typically, annuities are financial contracts which provide payments to an individual over the course of their lifetime.

Advantages and disadvantages

Investing in annuities can have benefits depending on a person’s current financial situation as well as their future financial concerns. The advantages of annuities are:

  • guaranteed payments over your lifetime
  • guaranteed return rates
  • tax-deferred growth

Just remember that those guarantees listed above are only going to be as good as the company that issues them. In other words, if the company goes “belly up” those guarantees become worthless. Now let’s consider the disadvantages which include:

  • having to pay for those guarantees
  • IRS rules govern and/or restrict how an individual withdraws annuity funds
  • oversold by banks
  • surrender periods tie funds up for longer periods of times

When should I sell my annuity?

Although annuities have oftentimes been touted as one of the best retirement financial instruments, they may not always be the best option for every individual. Only you can decide if this is going to benefit you when you finally decide to retire. In many instances, a person may realize that once they have retired, that their annuities were not a wise decision. So they question when they should actually sell their annuities.

Determining when to sell your annuity can be a difficult decision, but the primary reason for doing so is typically based in a person’s financial need to sell it. You may get to the point where retirement is 10 to 15 years away and see that it is not developing at the rate you had hoped and that you are not going to realize the retirement funds you need. In this case, you have time to convert that annuity into some other financial vehicle so that the money you need to survive once you retire will be in place.

Most individuals prefer the lump sum method of cashing out an annuity in exchange for buying any future annuity payments. Just be aware that this could possibly cost you a lot of money where transaction fees are concerned. You may be able to save on these transaction fees by only cashing out a portion of that annuity and restructuring the balance. So there are options.

The bottom line is that ultimately, the decision to cash out or sell that annuity rests on your shoulders. You want to be careful when making your decision as a knee-jerk reaction could do you more harm than good. If you have hired a financial advisor or planner, you should consult with them first before making any decisions. Additionally, consider discussing the matter with your income tax preparer in order to find what the implications are where the IRS is concerned.

{ 0 comments }

How To Invest Well For Retirement

by JJ

There are many different ways in which you can invest for your retirement, such as IRAs, 401ks and annuities. All of these forms of investment are very different to each other and all have their advantages and disadvantages which I will explain.

Annuities are tax-deferred which means you will not have to pay taxes on your savings until you begin to withdraw the money, this means that you will invest every single dollar and this will produce a large profit in the long term. Annuities also do not have a contribution limit which makes them useful if you have invested the maximum amount of money possible into your IRA or 401k or if you did not make sufficient contributions in the past and would like to catch up on your retirement. However, annuities lack liquidity which will make then unsuitable for savings funds and will not be able to be used as emergency funds due to the high surrender charges.

IRAs and 401ks are also tax-deferred so you will not need to worry about taxes until you retire, however, you will have to pay taxes on your contributions to your IRA. With an IRA you will have more control and if you open your account with a broker, you will be able to purchase individual stocks, bonds or index investments that the broker has to offer, this is an advantage over annuities or employee-sponsored plans, with annuities charging investment management fees and some insurance companies offering bad investment plans with low returns, and often quite risky.

There are two different types of IRAs, a Roth IRA and a traditional IRA. With a Roth IRA there is not limit on when you have to withdraw the money, as opposed to the traditional IRA where it is mandatory to withdraw the money once you reach age 70 1/2, even if you do not currently need the money, with a Roth you can keep the money and keep the funds growing, tax free. With both types of IRA there is a maximum contribution limit of $5000 for the first two years. Every year the contribution limit increases by $500 increments to allow for inflation, meaning after three years the maximum you can deposit that year is $5500.

There are of course many other options such as investing in a savings account which is one of the most stable and less risky asset but you will have to take into account that inflation may reduce your interest rate and the value of your investment, and since cash is a very safe form of investment you should not expect an amazing rate of return. The general rule is the lower the risk you take when placing your investment, the lower your return. However if you are within 10 years of retiring it is a good idea to move your investments out from the higher risk assets such as an annuity or other forms of high return but risky investments, and into a savings account in order to protect its value and guarantee that it is safe.

{ 0 comments }

Immediate vs Deferred Annuities

Annuity is often used to refer to the income payable over an agreed and stipulated period of time in the future. Annuities have proven to have their benefits and disadvantages. Some of the general advantages that one gets when using annuities include cushioning people from huge debts and protecting them from any tax evasions. There [...]

Read the full article →

Fixed Annuities vs Bonds

When it comes to retirement there are a number of investments that people can make and the decision is usually based on various factors. The most challenging question that faces most people in retirement is whether to invest in fixed annuities or bonds. These are two different types of investments that offer different returns and [...]

Read the full article →

Annuities vs CDs

When you are thinking of getting annuities, it can be hard to decide if you should opt for CDs or fixed annuities and as such, it is important to weigh some of the factors that distinguish these two so as to get a clear picture of the most ideal option. To a large extent, this [...]

Read the full article →

Annuities vs Stocks

No matter if you are considering annuities or stocks to help with your retirement nest egg, you need to make a determination as to which to invest in based on certain factors. First and foremost, if you are a beginner or novice investor, educating yourself is what you want to do first. This [...]

Read the full article →

Annuities vs IRAs

Annuities and Individual Retirement Accounts (IRA’s) are similar in one respect in that they are both financial instruments that people use a financial tool for funding their retirement years. In most cases, it is a matter of personal opinion based on what the individual feels their financial needs will be at the time they [...]

Read the full article →

Common Retirement Investment Mistakes

When people begin to invest for their pension, they can make a series of mistakes. Firstly, they may go for a standard IRA or an employer-sponsored plan; these plans usually have a low contribution limit and will not produce much profit in the long term, meaning that they will receive bad pay-out and have an [...]

Read the full article →

Annuities for Dummies

Different types of annuities
Although there are a variety of annuities available in the investment marketplace today, there are primarily 4 different types of annuities to learn about including:

fixed – also known as an equal of flat annuity the earnings of which are paid according to a quarterly or annual payment schedule.
immediate – these are also [...]

Read the full article →

Fixed Annuity Benefits

There are several benefits of owning a fixed annuity. However, before even proceeding to evaluate these benefits, it is good to begin by understanding what a fixed annuity actually is.
Fixed annuities are investment contracts that are tax deferred. This is to say that the tax on the growth of this investment is usually deferred until [...]

Read the full article →

← Previous Entries