Annuities

Insurance benefits while you’re alive

The question might be asked if it’s a wise idea for a senior to purchase annuities, and that cannot be answered with a simple yes or no. There are many factors at work in this decision such as your finances, health, personal situation and overall goals. For some, an annuity can complement your financial plan; for others, it would not be a wise investment.

First you should be absolutely certain what an annuity is. On the simplest level, an annuity is an agreement between you and your insurance company. The contract will state that you will either make a series of payments or one lump-sum payment, and in return, the insurer will make begin to make payments to you at a later date. One of the biggest benefits of a plan like this is a tax-deferred growth of earnings.

Fixed Annuities and Variable Annuities

There are usually two kinds of annuities: fixed or variable. With fixed annuities, the insurance company will guarantee a rate of interest during the time that your fixed annuity is growing, and they will also guarantee that any payment received by you or your beneficiaries is a specific amount and for a specified amount of time. By contrast, a variable annuity allows you the flexibility to choose how you will invest your purchase payments. You will be given a variety of options (mainly mutual funds), but the return and the amount of the payments that you will receive will be dependent upon how well your investments performed.

Variable annuities are securities and are therefore regulated by the Securities and Exchanges Commission (SEC). In contrast, fixed annuities aren’t considered to be securities and aren’t regulated by the SEC. Some annuities are deferred; others are immediate. There are other types of annuities as well, but you should check with an investment broker for more details.

Are annuities right for you?

Annuities may seem a bit complex, so here are a few things to consider that might help you decide if they are best for you. Annuities might be considered a better option if you have at least 15 years to work with or to allow the accumulation to take place. If you do not have at least 15 years to play with then you may want to consider another option. Annuities have a high liquidity risk as a long-term investment. Simply put, your investment would likely be locked in and early withdrawal would result in surrender penalties.

Annuities can promise steady growth with evenly distributed payouts while others can offer with fluctuating returns. This is true for both types of annuities. Beware of anti-annuitant clauses as they remove any promise of flexibility, and be cautious when approaching immediate annuities if your plans include leaving an estate.

Annuities are often complicated and can sometimes be difficult to understand if you are not in the financial service industry. You don’t have to be an expert to enjoy the benefits of annuities, but you should at least know how to ask the appropriate questions.