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Told Not To Annuitize

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Told Not To Annuitize

Postby Freemon » Sat Dec 03, 2016 10:04 am

I'm 58 and have a 5 year fixed annuity, I've had it just one year. I was talking to an investment advisor who said that when it is out of the surrender period in four years I shouldn't annuitize. But isn't that the whole point of an annuity? To depend on it for a guaranteed monthly 'income'? Thanks
Freemon
 
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Joined: Thu Mar 06, 2014 7:14 am

Told Not To Annuitize

Postby Alastair » Sat Dec 03, 2016 9:28 pm

When I first entered the industry, I believed that contracts like annuities had certain mystical powers that somehow conferred universal suitability on them. That is of course a fiction.  The truth is that everyone has a unique set of circumstances, and that those circumstances should determine whether or not you annuitize, roll over, or surrender the annuity when it passes the surrender charge period.  Here are some advantages and disadvantages of annuitization to consider:

Advantages: 1. Annuitization provides guaranteed lifetime income based on age and sometimes gender.  You can't outlive the income.

2. If using an after tax purchase payment(i.e. the original amount you use to buy the annuity), a portion of each payment is considered return of principle and is not taxed. So, you pay less in income taxes than you would if you were simply drawing interest off of a CD.

3. Insurance companies are rated by A.M. Best & Co. and other agencies. A top rated insurance company is a very safe place to invest money.  In the event of an insolvency, state laws protect the consumer by requiring other insurance companies to cover the lapsed company's contracts.

Disadvantages:

1. Once you "annuitize" the money, you forfeit the right to a lump sum payment. Circumstances could change and you might need the lump sum.

2. When you die, the insurance company generally has no further obligation(with some limited exception) to your survivor.  A joint annuity is an exception to this rule.  However, joint and lifetime payments are lower than those based on just one life.

3. The payout for a younger individual(generally under age 65) is frequently less than could be obtained by placing the funds into a bond or other fixed income vehicle.

I suggest using a financial planner to help you determine your income needs, factor in inflation and risk tolerance, and advise you based on you individual needs.

David S. Bowman, CLU
Alastair
 
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Told Not To Annuitize

Postby Channe » Wed Dec 07, 2016 7:19 am

I'm 58 and have a 5 year fixed annuity, I've had it just one year. I was talking to an investment advisor who said that when it is out of the surrender period in four years I shouldn't annuitize. But isn't that the whole point of an annuity? To depend on it for a guaranteed monthly 'income'? Thanks
Channe
 
Posts: 49
Joined: Tue Jan 14, 2014 5:27 pm


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