17 May Annuity Mistakes to Avoid, Here are 4 Considerations
Have you seen those ad’s that say, Don’t Make these Annuity Mistakes, or Don’t Buy an Annuity? Annuities are commonly touted as the “bad seed” in the financial industry, but if they’re so bad, why are they still around? Why haven’t they died out from unpopularity? Someone must be purchasing them and enjoying their benefits … enough to keep them in the game. Like most everything in life, there are good annuities and bad ones.
Unfortunately, they are not a one-size-fits-all package. The annuity that your neighbor raves about might be a disaster for you and vice versa. Does that make all annuities bad though? Not at all. So how do you find the right annuity for YOU? This article will discuss four points you need to consider before purchasing an annuity. This article will discuss the four considerations to make before purchasing an annuity and to avoid these common annuity mistakes.
1. Map Out Your Financial Plan
– Where are you now financially? What are your assets and debts? What age do you plan to retire? Based on your current financial picture, how much money will you have to live on once you retire and for how long? What does your financial picture look like if your spouse were to pass? So, don’t just purchase an annuity because in came with a 10% bonus on your deposit, that’s a big annuity mistake. The upfront bonus could end up costing you in the long run. The bottom line, if you decide to buy an annuity, make sure it’s part of your overall financial plan.
2. Have an Emergency Fund
– Keep in mind, annuities are longer term investments (typically 5 to 10 years or a lifetime if you turn your annuity into a personalized pension). So, what does that mean for you? Well, besides having patience, you will need a good emergency fund. What happens if you experience a mishap not covered by your homeowners, auto or health insurance? What if you lose your job and need money until you find another one? Cancelling your annuity contract can, like IRAs and 401(k)s, come with significant penalties. Make sure you have something set aside (most experts recommend at least three months of expenses) for an emergency so you won’t have to tap into your annuity or any other retirement investments.
3. Buy the Right Annuity for Your Specific Need
– There are thousands of different annuity types, and not having a good understanding of the annuity plan(s) you are interested in can cost you serious money. Trust me, we’ve seen this annuity mistake! Buying an annuity is not like buying an apple where you just pick one out of the bin and it tastes the same no matter who eats it or where. Instead, buying an annuity is a lot like buying a car. You have to take a lot of things into consideration, such as company, type, engine, features, financing options, etc., before deciding on the one that’s right for you and your specific needs. Watching our sessions on the different types of annuities and the considerations you should make with each will help you make your decision.
4. Where to Buy an Annuity
– So now that you’ve decided which type of annuity is right for you, where do you go to buy it? You will need to purchase your annuity either directly through an insurance company, an agent or through a financial advisor. One of the biggest annuity mistakes is buying through an insurance company or an agent. Here is why. If you go to the Ford dealership, don’t expect to buy a Toyota. Ford is only going to sell you a Ford and not a Toyota. Annuities are very similar, if you compare only one or two insurance carriers, you will only be presented with their annuity. Which may not be the best annuity for you (when there are thousands of annuities available on the marketplace). The solution, look for independent financial advisors who work with the top insurance companies, because they will be able to offer you a variety of products that meet your specific need. Check out are article on “Choosing the right advisor to buy from“.
So, the next time you hear that annuities are bad news, take it with a grain of salt. Most likely, that comes from someone who made some annuity mistakes and purchased an annuity that was completely wrong for their situation. Don’t let someone else’s annuity mistake keep you from taking advantage of a great investment opportunity!
If you’re in the process of buying an annuity or have an old annuity that should be reviewed, please contact us and you’ll be able to make decisions that benefit you and not the insurance company or agent selling it to you.