Annuities are assurance products that often are retirement strategy components because they pay fixed or variable interest payments as you age. It is a traditional option for those who want ensure they have a steady stream of income in retirement. When you invest in an annuity, it makes payments to you on a future date or series of future dates. The income you earn from an annuity is distributed on a monthly, quarterly or annual basis. It can also be one future lump sum payment. A variety of factors determines your payments size, such as the payment period length and whether you want to receive payments for the rest of your life or a certain number of years. The amount you receive varies between a guaranteed payout or a payout stream based on the performance of your annuity’s underlying investments.
Choosing to Sell an Annuity
An annuity can be a valuable retirement planning tool, but it can also be a poor investment option for many people because of the notably high fees. Insurance salespeople and financial planners will frequently try to steer seniors or other people in various stages toward retirement into annuities. Unfortunately, it can be as costly to keep as it might be to sell. Some reasons that people choose to sell their annuities include:
- Life circumstances change, such as divorce or unemployment
- Pay off a high-interest debt or manage other financial problems
- Make a large investment, such as a house or a car
- Provide a lump sum to relatives or dependents
- Finance an education for themselves or a family member
- Purchase a more flexible pension income product
- Costs and fees outweigh the anticipated interest
If you are contemplating investing in an annuity, make sure to research it thoroughly before deciding whether it’s an appropriate investment for your individual situation. While annuities are ideal financial investments for some people, they are not always the best choice for everyone. It’s important to carefully consider all your options first before jumping into this type of investment.
The Bottom Line on Annuities
There is a lot to understand before investing in an annuity. There are reasons why annuities sometimes make sense, but sometimes there are even more reasons why they do not. When in doubt, get a second or a third opinion from trusted financial advisors who will not be selling you anything. You just are asking for advice. If you have already purchased an annuity, turn to these same advisors for advice on if you should sell yours and the possibility of penalties.