Annuity

Do Fixed Annuities Have Fees?

do-fixed-annuities-have-fees

Are you thinking about an annuity for some of your retirement savings? Are you worried about fees? The good news is that many annuities don’t have fees, but it also depends on the annuity type you are talking about. There are five kinds: variable, immediate, fixed, multi-year guarantee, and fixed index annuities.

Variable annuities offer the most growth potential, but they also have the risk of market losses and tend to be fee heavy. The other four kinds fall into the fixed column.

Fixed annuities and multi-year guarantee annuities have guaranteed rates for a set period. Fixed index annuities can earn interest based on a market index’s performance, but the growth potential is limited. Immediate annuities start paying you income right away, while with these other fixed-type annuities you usually start income payments some years down the road.

Let’s go back to our overall fixed annuity focus. Most fixed annuities don’t have fees. Fixed index annuities don’t have upfront fees, but some add-ons to a base contract may have fees. It depends on whether you would like those add-on benefits on top of what a base contract gives you.

What about surrender charges and things like that? All annuities are long-term vehicles, and they have maturity periods. If you wish to take advantage of the benefits, then keep your money in the annuity until it matures. Otherwise, there might be a surrender charge. It’s a way for the insurance company to manage risk and keep its promises to you and many other customers.

In this article, we will go over why fixed annuities don’t have fees and how they work.

Read More

Are Annuity Surrender Charges Good or Bad?

are-annuity-surrender-charges-good-or-bad

Are annuity surrender charges a good or bad thing? If you want a predictable income steam in retirement, only annuities can provide you with guaranteed payments for life or for a set period. No other financial product can truly do this.

On the other hand, a surrender charge can be a hold-up for someone who might otherwise be interested in an annuity for its guaranteed benefits. Annuities are contracts between someone and a life insurance company.

They are a long-term commitment, and if someone wanted to take out more money than is permitted or exit the contract prematurely, a surrender charge would apply. Of course, surrender charges also help insurance companies maintain their long-term promises to policyholders as well.

So, are annuity surrender charges good, bad, or indifferent? How do they work, and in what specific ways do they work for you? Are there other upsides to annuity surrender charges beyond the obvious benefit of helping the life insurance company?

The truth is, they are more of a necessary feature than a judgment of goodness or badness. In some respects, you can say they are a neutral thing. Let’s break them down into some simpler terms.

Read More

Annuity Pros and Cons for Secure Retirement Income

pros-and-cons-of-annuities-for-retirement-income

Annuities are gaining prominence as a key element in retirement planning, offering potential solutions for those seeking a reliable income stream after they stop working. Everyone is scared to run out of money after retirement, therefore, to make informed decisions aligned with long-term financial goals, it’s crucial to understand the diverse types of annuities available. Let’s explore annuity pros and cons, detailing the various options like immediate, fixed, variable, and indexed annuities, to help you determine if an annuity is the right fit for your retirement savings. By examining the advantages and disadvantages of each type, you’ll gain a comprehensive understanding of how annuities can either bolster or hinder your retirement plans.

What Is an Annuity? A Primer on Retirement Income Options

An annuity is a financial product sold by insurance companies that guarantees a regular income stream for a period of time, possibly for the lifetime of the annuitant. This product plays a crucial role in retirement planning, providing a sense of security via steady cash flows. There are various forms of annuities; the primary types are immediate, fixed, and variable. An immediate annuity starts payments almost after purchase, while a deferred annuity accumulates interest, beginning payouts at a future date. A choice between fixed, variable, and indexed annuities offers either a guaranteed return or returns tied to market performance.

Annuity Types Explained

Immediate Annuities

Immediate annuities are ideal for retirees who need a guaranteed income soon after investing. This type involves a lump sum payment to an insurance company, which in turn provides a series of payments that start almost immediately and continue for the agreed term or for the annuitant’s lifetime.

Deferred Annuities

Deferred annuities allow the investment to grow before income payments begin. This can be particularly beneficial for individuals who are still in the workforce and planning for future income.

Fixed Annuities and MYGAs

Fixed annuities offer a guaranteed interest rate and are often subsequent investments for retirees who prioritize safety over high returns. Multi-Year Guaranteed Annuities (MYGAs), a subtype of fixed annuities, provide a fixed rate for several years, ideal for those seeking predictable returns.

Variable Annuities

Variable annuities provide an income based on the performance of underlying investments, typically mutual funds. While they offer higher growth potential, they also come with increased risk, depending on market conditions.

Fixed Index Annuities

Combining the features of fixed and variable annuities, Fixed Index Annuities (FIAs) protect the principal like a fixed annuity but earn interest based on the performance of an external index, subject to a cap on maximum returns. This type can be ideal for someone seeking stability, coupled with a moderate growth opportunity.

Read on as we explore annuity pros and cons in their entirety in the next sections.

The Pros of Annuities for Retirement Security

Steady Income Stream

One of the most significant advantages of annuities is their ability to provide a steady, predictable income stream, much akin to Social Security benefits. Once invested, annuities can offer guaranteed payouts either immediately or at a specified future date, depending on the type of annuity chosen. This ensures that retirees have a consistent income despite fluctuations in the market or other income sources.

Longevity Risk Protection

Longevity risk, or the possibility of outliving your savings, is a substantial concern for many retirees. Annuities act as a hedge against this risk by offering options for lifetime payments, ensuring that individuals have a financial safety net that endures throughout their retirement years.

Market Risk Mitigation

Particularly during the ‘retirement risk zone‘—the period just before and after retirement—market volatility can substantially impact one’s savings. Annuities, specifically fixed and indexed types, provide principal protection that shields retirees from downturns in the market, safeguarding their essential retirement funds.

Flexible Payout Options

Annuities come with a variety of payout options, allowing individuals to tailor their income based on their specific retirement needs. Whether it’s opting for a lump sum, periodic installments, or a combination, this flexibility helps manage financial planning more effectively.

The Cons of Annuities: Understanding the Trade-Offs

Product Complexity

Annuities are often criticized for their complexity. Each annuity product comes with different features, fees, and contingencies that can confuse even the most knowledgeable investors. Understanding these complex contracts and additional riders necessitates thorough research or a knowledgeable financial advisor.

Liquidity Concerns

Liquidity, or the ease of accessing funds, is less flexible in annuities compared to other financial products like mutual funds or stocks. Many annuities impose withdrawal penalties or surrender charges during the early years of the contract, restricting access to funds in case of an unexpected financial need.

Fees and Expenses in Annuities

The costs associated with annuities can be high, particularly with variable and fixed-indexed annuities that come loaded with management fees, mortality and expense risk charges, and other administrative expenses. These fees can erode the potential gains of an investment, making it crucial for buyers to understand fee structures before committing to an annuity.

Annuity Riders and Their Additional Costs

Annuity contracts can be customized with optional features called riders, which enhance the contract’s benefits but come with additional costs. This is an important factor to consider when weighing annuity pros and cons. Common riders include:

  • Death Benefit Rider: Ensures beneficiaries receive a specified amount if the annuitant dies before receiving the full financial benefits.
  • Living Benefit Riders: Guarantee a minimum income regardless of how the underlying investments perform.
  • Long-Term Care Riders: Allow penalty-free withdrawals if the annuitant requires long-term care.

While these riders can provide valuable protection and peace of mind, they also increase the overall cost of the annuity. It’s essential to carefully assess your needs and financial situation to determine whether the added benefits outweigh the additional expenses. Consulting a financial professional can help you navigate these choices and make informed decisions about which riders, if any, are appropriate for your individual annuity contract.

Assessing Annuity Costs: Fees to Consider

Understanding all associated fees is crucial when purchasing an annuity. Administrative fees cover the insurance company’s costs of maintaining accounts, while mortality and expense risk charges compensate the insurer for underwriting the contract. Variable annuities may have additional investment management fees linked to the performance of underlying funds. Prospective buyers should also scrutinize any rider fees for added services. These fees vary from one annuity to another and can significantly impact the effective returns, making transparency in pricing and a thorough cost comparison essential steps in selecting the right annuity for your retirement needs.

Making the Decision: Is an Annuity Right for Your Retirement Plan?

Deciding whether an annuity fits into your retirement landscape necessitates a holistic evaluation of your financial situation, goals, and the trade-offs you’re willing to accept. Start by assessing your retirement income needs against expected income from Social Security, pensions, and any savings or investments. If there’s a gap, an annuity might be a strategic tool to ensure a guaranteed income stream that covers your essential expenses.

Consider your tolerance for risk and complexity. If you prefer a straightforward, guaranteed income with minimal exposure to market volatility, fixed or indexed annuities could align with your preferences. Conversely, if you’re comfortable navigating the market’s ups and downs in exchange for potentially higher returns, a variable annuity might be worth exploring.

Liquidity is another critical factor. If you anticipate needing access to your funds in the early years of retirement for unforeseen expenses, the potential surrender charges associated with annuities may be a deterrent. Reflecting on your health and longevity expectations is also vital; annuities make the most financial sense for individuals expecting to outlive their other retirement savings.

Lastly, it’s paramount to consult with a financial advisor to navigate the complexities of annuities. Their expertise can help you understand the nuances of various products, ensuring your choice fits seamlessly into your broader retirement strategy. Remember, an annuity is not merely an investment but a commitment to your future financial security, deserving careful thought and planning.

Some Final Thoughts on Annuity Pros and Cons

Utilizing an annuity for retirement income can offer substantial benefits. In fact, annuities stand alone as the only financial product capable of providing a guaranteed income stream throughout your lifetime, offering unparalleled peace of mind.

However, like any financial tool, annuities come with their own set of annuity pros and cons. The key lies in integrating an annuity strategically into your broader retirement income plan, ensuring it addresses a specific income gap or financial challenge within your existing strategy.

As you weigh the annuity pros and cons, it’s crucial to tailor your annuity choice to your unique financial situation and retirement aspirations. Consulting an experienced and independent financial professional with expertise in retirement planning and annuities can be invaluable. They can guide you through various options, identify annuities that align with your needs, and ultimately determine the most suitable solution for your retirement goals, ensuring a stable and fulfilling retirement journey.

Looking for an independent financial professional to guide you?  SafeMoney.com offers a network of experienced professionals ready to assist. You can easily connect with one by visiting our “Find a Financial Professional” section and schedule a free appointment. Alternatively, call us at 877.476.9723 for a personalized referral.

Can You Buy Annuity at Any Age? Explore Your Options

Can You Buy an Annuity at Any Age?

Can you buy an annuity at any age? This question surfaces often among individuals planning for financial stability in retirement. Here, we delve into whether age limits exist for purchasing annuities and the best times to consider such investments. We’ll also cover how to buy an annuity at an early age, guiding you through the nuances and benefits.

Our financial experts at Safe Money are equipped to offer insights and advice tailored to your financial planning needs. Through this discussion, you will gain clarity on the age-related restrictions of different annuity types and understand the strategic timing for investing in them to ensure a secure financial future. Let’s explore these critical financial tools together, helping you to prepare effectively for the years ahead.

Can You Buy Annuity at Any Age?

Can you buy an annuity at any age? This question often comes up when planning for long-term financial security. Generally, annuities can be purchased at almost any age, with minimal restrictions on how young a buyer can be. However, some practical considerations apply, especially when it comes to age limits on the upper end.

Most annuities have an upper age limit for purchase, which can vary depending on the type of annuity and the provider’s specific rules. These limits are set because annuities are fundamentally long-term investments aimed at generating retirement income. Providers assess risks and potential returns based on the age of the annuity holder.

Types of annuities like fixed, variable, or indexed have different restrictions. These products are designed to suit varying financial goals and risk tolerances, which can influence at what age they are appropriate or available. For instance, younger individuals might opt for variable annuities to capitalize on long-term market growth, while older buyers might prefer fixed annuities for stable income.

Buying Annuity at an Early Age: A Strategic Move

Buying an annuity at an early age is less common but can be a strategic move for those seeking to grow funds tax-deferred or protect principal early in their career. The typical age range for purchasing annuities tends to be between 40 and 80. According to industry surveys, the average age for first-time buyers is around 51.

It’s important to consider that while you can start buying an annuity at any age, the suitability and benefits of the investment vary significantly by individual circumstances. Younger buyers rarely pursue annuities unless they are particularly focused on specific financial strategies. In contrast, those closer to or in retirement might find annuities an essential part of their financial planning, ensuring a steady income stream in their later years. Thus, when considering an annuity, align your investment with your financial timeline and goals.

Age Restrictions for Different Annuity Types

Can you buy an annuity at any age? Each type of annuity has its specific age restrictions, which are essential to understand when planning your financial future. Here we break down the age limits for various annuities and suggest which ones might be more appropriate for different age groups.

Immediate Annuities

Immediate annuities are purchased with a one-time payment and start providing income soon after. Most buyers are in their 70s, though some companies allow purchases up to age 100. The older you are when buying, the higher the monthly payout, but once annuitized, the funds cannot revert to a lump sum.

Fixed Index Annuities

These annuities earn interest linked to a market index during a deferral period. Age limits for buying fixed index annuities typically range up to 85, but some extend to 80. Buying annuities with income riders may require being at least 50. Keep in mind that early withdrawals before age 59.5 might lead to taxes and a 10% penalty.

Multi-Year Guarantee Annuities (MYGAs)

MYGAs, or fixed-rate annuities, involve a single premium payment for a guaranteed interest rate over a set term. They are usually available for purchase up to age 85, though some insurers offer them to older individuals. MYGAs are favored by people in their 50s to 70s, looking for steady income or growth, but may not suit very late-life financial strategies due to their long accumulation phases.

At What Age Should You Buy Annuity?

Understanding when to start buying an annuity can be crucial for maximizing its benefits. The ideal age for purchasing annuities varies based on personal financial situations and long-term goals.

Buyers in their 30s and 40s

For those considering buying an annuity at an early age, the 30s and 40s can be opportune times. Individuals in this age bracket often seek stable, risk-averse investment avenues. Annuities provide a way to grow savings safely, complementing other retirement and investment accounts. This approach allows younger buyers to benefit from compound growth over a longer period.

Buyers in Their 50s and 60s

As individuals approach retirement, the focus shifts towards preserving accumulated savings and securing a stable income stream for the future. Buying an annuity at this stage is popular, as it offers financial peace of mind with guaranteed future income. People in their 50s and 60s often choose deferred annuities, planning for a steady income stream that will begin in their later years.

Buyers in Their 70s

In their 70s, most individuals prioritize income security above all else. Annuities appeal to this age group because they provide reliable, guaranteed payouts that can support a person’s lifestyle in retirement. The emphasis is on immediate annuities that start paying out soon after purchase, offering a financial cushion that alleviates worries about outliving one’s savings.

Tailored Approach

Choosing the right annuity involves more than just age; it requires a deep understanding of your unique financial landscape, objectives, and liquidity needs. Consulting with a financial advisor is essential to navigate this complex decision, ensuring that any annuity purchase aligns well with your overall financial strategy and retirement planning goals.

Ready To Buy an Annuity?

Since 2012, Safe Money has been dedicated to empowering individuals like you to achieve a secure and prosperous retirement. Our mission is to provide you with comprehensive financial education and to guide you in exploring safe financial strategies, including annuities and life insurance, which offer contractual guarantees. These tools are crucial for reaching your retirement goals with confidence.

Now, can you buy an annuity at any age? Absolutely, and the knowledgeable professionals at SafeMoney.com are here to assist you. Visit our “Find a Financial Professional” section to connect directly with an expert, or call us at 877.476.9723 for a personal referral. Let us help you secure the retirement lifestyle you deserve.

Who Holds the Investment Risk with a Fixed Annuity Contract?

who-holds-the-investment-risk-with-a-fixed-annuity-contract

Annuities are a growing solution for people wanting financial stability and protection, especially in their retirement years. While all annuities can pay a steady, guaranteed income stream for life, fixed-type annuities can be appealing at times when markets are chaotic and economic conditions are uncertain. They offer the benefit of principal protection.

Of course, if you are considering a fixed annuity as part of your financial plan, you may wonder about the risks tied to owning one. After all, annuities are supposed to be a tool for managing risk, right? Who assumes the investment risk with a fixed annuity contract?

In this article, we will cover this question in depth, but here is a quick answer. The life insurance company standing behind the fixed annuity contract bears the investment risk. The insurer pools this risk across thousands of annuity contract holders, including you, and manages this risk in a variety of ways so that it can make good on its promises to you and everyone else. Life insurance companies have a strong record of fulfilling their contractual promises in good and bad economic times.

Before we take a deeper dive into fixed annuities and how insurance companies stand behind the investment risk of upholding them, let’s delve more into fixed annuities and what they involve.

Read More

Why Do People Buy Annuities? A Closer Look at Some Reasons for Owning Them

why-do-people-buy-annuities

If you are exploring ways to generate income in retirement, you may have thought about annuities at some point. Of course, annuities can be quite involved sometimes. They come in many flavors, and it’s quite natural to ask why people buy annuities.

The reasons are different for everybody. But one short answer is because annuities can provide more financial peace of mind with their contractual guarantees, backed by the life insurance company.

Annuities have grown in popularity, as people can use them to supplement their Social Security payouts, have a guaranteed lifetime income stream, earn interest on their money, protect their assets against market losses, and enjoy tax-advantaged financial growth. Paying for long-term care, offsetting inflation, and shielding assets from probate and creditors are a few other reasons as well.

In this article, we will delve into reasons behind why people buy annuities and how these guaranteed financial vehicles can contribute to a well-rounded financial strategy.

Read More

Using Annuities for Retirement Planning: Maximize Income and Protect Savings

using-annuities-for-retirement-planning

Retirement planning is a critical part of financial planning. It’s the point at which people leave behind a career and enjoy the fruits of their life’s work. Since they are no longer bringing home the bacon from their job or business, the money has to come from somewhere.

To that end, ensuring a secure and stable income during retirement is a top priority. While there are a variety of financial vehicles that you can tap for income, annuities are an effective way to maximize retirement income.

With their contractual guarantees, they offer a unique way to provide a steady stream of income throughout retirement, helping retirees maintain their lifestyle and meet their financial needs. The risk tied to annuity payouts is pooled by insurance companies across thousands of contract holders, creating efficient risk management that no individual retirees can produce by themselves.

In this article, we will cover using annuities for retirement planning, their benefits, and some reasons for including them as part of a comprehensive retirement plan. Before going further, let’s cover the basics of annuities.

Read More

Does an Annuity Bonus Make Sense for You?

annuity-bonus-is-it-right-for-you-img

You may have heard of an “annuity bonus” if you have ever looked at annuities before. Bonuses are just one annuity feature, but are they warranted? Are these annuity bonuses a good thing in general, or are they more of a good fit in certain situations?

In this article, we will go over the basics of an annuity bonus, what it involves, what situations in which you might consider one, and the pros and cons of an annuity bonus. In general, annuities that come with a bonus are called “bonus annuities.”

Read More

How to Roll Over an IRA or 401(k) to an Annuity

ira-rollover-to-annuity

If you are like millions of other workers in America, you have probably saved for retirement in an IRA, a 401(k) plan, or another tax-deferred account. The chances are also high that you worry about running out of money in retirement. Fortunately, you can put some of that fear to rest by having an annuity as part of your overall retirement strategy. Annuities are fundamentally unique savings vehicles because they can pay you a guaranteed, set stream of income that will last as long as you do.

Annuities can supplement your Social Security payments by providing additional guaranteed income that will remain steady regardless of how the markets perform. They can also help ensure that you have enough money coming in every month to cover all your living expenses.

In this article, we will go over more of the steps of how to roll over an IRA or 401(k) into an annuity. None of the steps are especially complex, but they must be done properly to ensure no tax consequences from the rollover (unless you are converting your annuity to a Roth account). To start off, let’s talk more about why someone might want to move some of their retirement money into an annuity.

Read More

Is Suze Orman Off the Mark on Annuities?

suze-orman-annuities

Suze Orman is a household name for personal finance. She has published many financial books, and millions of listeners tune into her interviews and radio shows. If you have ever heard Suze talk about annuities, you may wonder whether her annuity opinions are on the mark or are a nothingburger.

Yes, opinions are subjective, but even the self-styled “Money Lady” gets it wrong on annuities, especially fixed index annuities. That does a disservice to retirees and those planning for retirement. Ultimately, it limits their options that could help them reach their financial goals: paying them reliable monthly income, giving protection against market risk, offering guaranteed growth above what various fixed-interest assets may earn, and providing other benefits.

Another issue with Orman’s anti-annuity stances is that they often capture only part of the picture of a specific annuity kind or feature. Just like other financial products, annuities come in many flavors, and each one has its own strengths and purpose.

In this article, we will focus on Suze Orman and her public statements on fixed index annuities — and how these opinions miss the mark on how the unique guarantees of these products can help people in retirement.

Read More

Next Steps to Consider

  • Start a Conversation About Your Retirement What-Ifs

    retirement planning services next steps

    Start a Conversation About Your Retirement What-Ifs

    Already working with someone or thinking about getting help? Ask us about what is on your mind. Learn More

  • What Independent Guidance
    Does for You

    independent vs captive advice

    What Independent Guidance
    Does for You

    See how the crucial differences between independent and captive financial professionals add up. Learn More

  • Stories from Others
    Just Like You

    safe money working with us

    Stories from Others
    Just Like You

    Hear from others who had financial challenges, were looking for answers, and how we helped them find solutions. Learn More

Proud Member