What to consider before Purchasing an Annuity

I do not want to start off this article by telling you what an annuity is nor do I want to delve into the negativities. Instead, I want to clarify some things for you. I want you to think about what you want to do with your future and where you are at right now.

The most important factor in deciding on whether or not you should purchase an annuity should be figuring out where you are situated right now. I will give you several examples to help assist you in your decisions.

Many people have approached me about their fears over their 401k’s. My neighbor told me the other day he is losing money by the hand fulls. The last two months he has lost over $6000 in his company’s 401k. He is petrified of changing, but he is also nearing retirement.

Anything requiring investments in stocks is a gamble, we all know this. We also know the market is not anywhere near it used to be, for obvious reasons. Costs are up and home values are down, so you should absolutely be concerned about your future.

If you are looking for a great long term saving’s vessel, then you should absolutely consider an annuity. Preferrably fixed rate annuities, since these have a guaranteed minimum interest rate and often have a higher initial interest rate than in any other saving’s vessel available on the market. If you like riskier saving’s objectives, then you can look into equity indexed annuities.

If you have $6000 in your 401k and you are losing 2% of your investment($120) on average and are afraid of the 10% penalty you would be charged to close out your 401k, this is what you should consider.

12 months with an average of $120 lost would reflect $1440 over the year on that $6000 investment.
With your 10% penalty, that $6000 would lose $600. So what would you rather do, lose $1440 or $600.

You never want to place money with someone you know nothing about, so you should always look at the financial strength of the vessel you are choosing. Always have a list of questions available for the representative you are speaking with! Make sure this representative goes over everything with you, which they are legally required to do. Take the time, when you receive your annuity, to look over the contract; if you are not satisfied you should contact them immediately to discuss your dilemma. Remember, you do have a free look period to take advantage of.

If you have excess funds that you do not want to touch, then these are the funds you want to use to invest in your future. You do not want these funds sitting in a bank account, 401k, or CD, if you are concerned about your savings, because you pay the taxes on these every year. With an annuity, you have a nice deferral to consider. This is fantastic, especially if you know you have something expensive awaiting your near future.

Why is this fantastic? Annuities are not untouchable. They are as easily accessible as heading to your bank. Plus, many companies do not charge for your first 10% you remove.

By the way, an annuity keeps your money out of probate, if something should happen to you. You never want to have money heading into probate, because your family would have to use those funds to pay attorney’s fees. Plus, you do not want your family fighting over your final wishes. You stipulate your beneficiaries and that is that.

I want to mention something else regarding an annuity, which involves life insurance. Whole life insurance is not cheap, we all know this. The beautiful part of whole life policies is that they accumulate monetary value. However, if you are paying hundreds for this policy, then you are most likely spending more for this policy than what you really need to. You can transfer the value of your whole life policy into an annuity. If you do so, then you could turn around and purchase a term life policy to cover your final expenses. This would save and earn you a ton of money in the long run.

Once again, you should contact a representative you know and trust to discuss your options available.

For those of you, living in Ohio, interested in more information. My name is Ron Lester, a licensed agent with Benefits Management Agency, Inc. You can contact me at 440-539-6984.