[vc_row][vc_column width=”2/3″ el_class=”section section1″][vc_column_text]Comprehending annuities is essential for older people, but more often than not, they do not know what annuities actually are.
An annuity can be a smart investment for retirement. An annuity can be a beneficial investment vehicle, but it may also help you get the retirement or nursing home paid for by the government. Unfortunately, for some retirees, buying into an annuity may be a terrible mistake for their situation. How do you know if purchasing an annuity plan is right for you?
For an experienced and disciplined buyer, a deferred annuity can be a useful way for an investor to regularly put aside cash, particularly during their work period, so that their investment grows throughout the years. Until it is cashed out, interest gained on a deferred annuity will not be liable to tax. Once the initial investment has increased in value, this can be changed into another model that can provide a guaranteed income to substitute money that is no longer coming in due to retirement or supplement additional income during retirement.
Typically, it is recommended that it is best to invest in an annuity around aged 45 and up before there is an actual necessity for income during retirement. Because a lot of annuities tend to begin with a large lump sum invested into the plan, many be may be using a windfall, a bonus, or an inheritance of some sort, and of course, earnings that have been saved over the years. Some retirees that are comfortable with living on their pensions, benefits or earnings from traditional investment vehicles will invest extra earning or money into a deferred annuity plan. Long-term care expenses are not yet experienced by such committed buyers.
For those that are interested in investing in an annuity, please be wary if you are given a chance to join a representative to a paid-for dinner or outing that includes a sales pitch in regards to merging other investment vehicles into an annuity at no charge. Unfortunately, annuities are generally sold at commission, which can be the prime motivators for these sales reps. After the annuity is purchased, there is little obligation for the sales rep or financial advisor, as some are called, to adjust the plan once the contract is signed.
There may be penalties or surrender fees when an annuity holder wishes to withdraw from their account. So basically, if the investor does pull money from the annuity, the owner will receive less than what they had put in initially. The duration of how long a surrender period is active can differ from zero to a decade and a half. The fees can also be drastically different, but generally, they are charged by percentages. Throughout the life of the annuity, the fees lower. Many people do not understand these factors during the sales pitch.
It has been advised that people with less than a million dollars of un-tied funds should not purchase an annuity if they are over 65 years. Unless an annuity meets criteria not usually found in annuities, people tend to run into issues when they register for Medicaid.
Some of these issues can be the following:Â
- Annuities deemed to be both an accessible asset and an accessible form of income stream.
- The power and, therefore, the requirement to allocate revenue from the annuity to a third party for less than what is valued.
- Receiving a death benefit or a survivor’s benefit that is under a different person than the person registering for Medicaid benefits.
When correctly applied, an annuity that complies with Medicaid requirements can provide savings of thousands, tens of thousands, or quite possibly hundreds of thousands of dollars from nursing expenses. But a Medicaid-compliant annuity is a business tool for a lawyer to apply for a client of theirs when they are in a nursing home. Make sure you understand this: not before, but when they are in a nursing home. Be cautious if a financial advisor uses this as a selling point for prospective buys that are in good health.
In regards to those that are involved in an annuity, there is a holder (the owner), an annuitant, and lastly, a beneficiary. The holder has the right to handle matters of the account while they are alive. The annuitant is individual that the annuity was created on in regards to their expected lifespan. The beneficiary of the annuity is the person that will receive payments from the annuity. There can be three people involved if that is desired.
Many buyers of annuities believe that they have purchased the plan with a bank, but this is very much impossible as only insurers can provide annuities. However, financial institutions can sell these insurance products for a commission. With being told by a bank representative that the investor would be a higher return with annuity rather than their Certificate of Deposit or some other investment vehicle, the investor may be sold on the idea and purchase the product.Â
But in many situations, the investor does not realize that they have transferred their assets to an insurance company and that their investment is no longer with the original financial institution. With this move, the investor gets slammed with surrender penalties and also can lose their long-term nursing care if the annuity is not Medicaid compliant.
As mentioned before, a huge motive for these representatives to selling an annuity is that these products come with sales commissions. Most of the elderly clients of the financial institution bank or credit union will be better of staying with their original investments, but if they are highly considering transitioning over to an annuity, it is advised to contact a financial advisor that has no interest to receive a commission in the matter to guide you, but works for percentages in how your investment (or investments) perform.
Usually, our customers are not precisely sure how or why they have obtained the various annuities over the years, but many seem to understand the knowledge of getting a number of free meals.
It is highly advised that an individual that has investments deal with only one financial advisor that understands the investor’s situations and where their funds are currently. That way, they have a clear understanding of there assets stand and what may be best for their client. These types of financial consultants are normally paid with a percentage in regards to the entire investment and not products. Generally, reputable and expert consultants do not make sales commissions on products.[/vc_column_text][/vc_column][vc_column width=”1/3″][vc_single_image image=”36064″ img_size=”292×285″ style=”vc_box_shadow”][/vc_column][/vc_row]
