Annuities Pros and Cons
Annuities are an investiture alternative that permit a person to get tax deferred payments for a predetermined amount of time. Prior to making such a large purchase (usually), it is a good idea to study carefully the good and bad points of an annuity. As we are all living longer these days (80-90 years is becoming the norm), a person is looking to spend one third of their lives as a retire.
Being aware of the good and bad points of annuities is important.
You should think about an annuity for tax deferred income once you have put in as much as you can into a Roth/Traditional IRA or a 401K. Annuities are attractive to people because they have the doubled benefit of returning a good income plus the tax on them is deferred. Nevertheless, one of the cons of purchasing an annuity, that should be taken into consideration is that the fees can in reality cancel out the tax benefits. There are setup and admin fees to be considered and if you need the money sooner than you anticipated, there are what’s called, “surrender fees” that are, not surprisingly, expensive.
Very fast, these charges accumulate.
Without doubt this is an important aspect about your decision for the type of annuity you take out.
If you have a mortgage you can take out ‘borrowed’ tax free payments when you take out a ‘reverse annuity mortgage’. For seniors who wish to carry on enjoying their lives as they did before, this alternative within an annuity can be very valuable. When seniors who have experienced low incomes retire, this facility will sort out their personal and medical needs for the rest of their lives and there’s no tax on this cash.
In a reverse mortgage annuity situation however, on the death of the plan holder, the lender will get control of their property and is something you need to be aware of. Another downside is that the stipulations for a reverse annuity mortgage are strict where banks are involved. As there are so many stipulations, particularly when the policy holder of a reverse annuity mortgage dies, it is essential they carefully study the small print in detail.
As always, expert financial help is available, so if you would like to know the ‘ups and downs’ of annuities, and if they are right for you, get in touch with a reputable financial adviser. Your financial adviser will need to explain in easily comprehensible terms, what to expect from an annuity (and what not) and ensure your individual needs are met.