When to Buy an Annuity:
Many advisors think they’re doing their client’s big favors with the idea that they’ll never put them in an annuity. However, annuities in the right situation, are fantastic and you should know that annuities serve specific purposes. If you happen to fall into one, an annuity can be a game-changer. Typically, you want to consider an annuity, such as 401(k) plans and IRAs, where buying an annuity makes a lot of sense.
The stock market freaks you out
Typically when a financial advisor offers a guarantee, tread carefully, as an annuity is an answer. Equity-based investments tend to fluctuate, which is to say that they can go down as well as up. But annuities can protect principal value, ensuring that your investment earns income in the future. This can be important if you are close to retirement, as annuities provide an immediate income.
You want to know how much interest you’re going to make
Annuities offer guaranteed returns if a steady income is your primary motivation. Annuities provide you with a variable return, allowing you to participate in higher-risk yielding options, and will assign a guaranteed return, which might be what you’re looking for. Moreover, a fixed annuity pays more than bank CDs, and you’ll have to lock up your money for 3 to 5 years.
You want guaranteed income
Annuities are investment contracts, and one of the important provisions you can include is guaranteed income. You can do this with immediate annuities and have it begin paying out an income stream immediately. Some deferred annuities will increase each year until you start making an income. It is more like how your social security benefit increases each year if you don’t touch it. With annuities that offer an income stream, you’ll know how much you’re going to get, once you decide to take it.
This is an excellent option in retirement; it operates as something very much like a standard pension. The big difference is that if something happens to you, the remaining funds would be passed on to your family.
You can’t leave more to your heirs
You can use an annuity to provide the same benefits as a life insurance policy. But, an annuity is an investment contract; you don’t need to qualify, the way you do life insurance. If you have a health-related condition that makes life insurance impossible to get, an annuity might be a really good alternative. Name your spouse as a beneficiary and the annuity will automatically pass after your death.
Some annuities offer death benefit riders that can pay a bit more than others. An annuity won’t get as much death benefit as a life insurance policy.
You don’t want to pay out of pocket
With people living longer, there is a growing concern for long-term care insurance. Most clients have purchased long-term care because they had a parent that spent time in a nursing home. For them, purchasing the insurance, and learning how much a premium costs, is enough to convince them.