As it is with anything in life, nothing is ever all good and nothing is ever all bad. It takes the two mingled together to give life its balance. With annuities it is not any different than anything else in life. There is some good things about annuities and there are bad things about annuities. So let’s look at the advantages of having an annuity are:
Since annuities are intended to add to one’s retirement financial security, all the money put into an annuity is tax-deferred. You will not pay taxes on the money in an annuity until you receive payments or you cash out early. If you have an annuity, which an insurance company paying you the settlement of a lawsuit, the payments you receive from the annuity, set up on your behalf is tax-free. The two different annuities should not be confused. There are more limitations with the structured settlement annuity than there is with the annuity you purchase for yourself.
The annuity you have purchased yourself will be an income to supplement your Social Security payments and the payment from your IRA.
Your annuity will increase the value of the original amount placed into through investment earnings.
Depending on the annuity you choose, you can have a say in how your money is invested. You can opt to take a risk or you can choose a safer route.
Depending on the annuity you have chosen and the contract, some annuities will allow you to withdraw money for specific emergencies without the 10% tax penalty for the early withdrawal.
With an annuity as an asset, a loan institution could more readily extend you a loan. Some people have used their annuities as collateral, but not all lending institutions will allow you to do that.
Should you decide you wish to cash out early without the penalty of the additional 10% tax you can only liquidate as much as you need and not the entire amount.
Annuities now offer death benefits.
You can choose when you want to receive payments from your annuity.
If at anytime you wish to change your annuity, the Internal Revenue Code Section 1035 Exchange will allow you to make the exchange without a tax penalty.
The disadvantages of an annuity are as follows:
You do not have instant access to the money in an annuity. To have instant access you must cash out the annuity at a significant loss to you.
Annuities are not a good way to leave your heirs a large sum of money. They will end up paying as much as 47% in taxes.
You are not able to exchange an annuity for a life insurance policy without the taxes being paid and depending on your age the 10% penalty tax could be levied.
You will not have the additional income should you out live your savings.
With an annuity, as I said, there is good and bad, however if you look at the total. There is more good than bad. It is understood an annuity will not work for everyone. If you are good at choosing investments, and you know how to minimize the commissions paid a broker, you may be able to increase your money better on your own. However, if you know absolutely nothing about stocks and investments, sometimes it is best when left in the hands of professionals.
If you have decided to purchase an annuity, you must have had a good reason at the time. Before you cash out an annuity make sure you have given the idea as much thought as you did when you bought the annuity. Buying annuities is not like buying a shirt and after you take it home if you don’t like it you can return it and get all of your money back. This is not the case with an annuity. So think long and hard before you buy one, and think even longer when you think you want to sell it.
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