Pros and Cons of Annuities
If you have retired from full time work and you want to get payments for a predetermined amount of time where the tax has been postponed then you need to look at an annuity. Before you make such a large purchase (usually), it is a good idea to examine carefully the good and bad points of an annuity. For most people, a large amount of their lives is spent in retirement, in fact anything up to a third now that so many are living into their 80’s and beyond.
So what are some of the annuities good and bad points?
You should think about an annuity for tax deferred income once you have placed as much as you can into a Roth/Traditional IRA or a 401K. It is the possibility of a good level of income from an annuity that are attractive by virtue of the fact that they are also tax deferred. All The Same, one of the cons of purchasing an annuity, that should be taken into consideration is that the fees can actually cancel out the tax benefits. As with all investment plans there are administration costs which can eat into profits but giving up the plan early can also be expensive to the annuity holder.
All of these fees will add up fast.
Your choice of annuity will count on your level of knowledge of these fees.
One option is to have a reverse annuity mortgage which permits you to remove funds (tax free), although this is actually borrowed and the value of the mortgage will be used to get it back at a later stage. For seniors who wish to carry on enjoying their lives as they did before, this option within an annuity can be very valuable. Low income seniors can receive tax free payments until their death, giving them lifelong fiscal aid for any potential personal and medical expenses that could arise.
In a reverse mortgage annuity situation however, on the death of the plan holder, the lender will get control of their belongings and is something you need to be mindful of. Banks do have very strict requirements for anyone applying for the reverse annuity mortgage. As there are so many conditions, particularly when the policy holder of a reverse annuity mortgage dies, it is important they carefully study the small print in detail.
As always, expert financial help is available, so if you want to know the ‘good and bad points’ of annuities, and if they are right for you, contact a reputable financial adviser. Your financial adviser will need to explain in easily comprehensible terms, what to look for from an annuity (and what not) and ensure your personal needs are met.