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This Is What You Need to Know About Annuity Before Retiring

Experts have noticed how people are starting to buy annuities again. It wasn’t long ago when there was a decline on the annuity purchases, but nowadays the demand seem to be rising since during the second quarter for this there was a 15 percent increase that was seen on the total annuity purchases compared to the previous quarter.

This was considered to be a massive change compared to two the last two years wherein there was a 7 percent decrease each year, making 2018 purchases a major comeback. However, there are still a lot of people who don’t really have enough knowledge when it comes to what annuities are and how they work.


Understanding Annuities

People who are getting ready to retire must know all about annuities and how they work. It is basically a contract between you an an insurance company, wherein it is stated that you are letting them manage your finances to be able to assure that your goals such as principal protection, lifetime income, and even long-term costs will be covered.

Some people refer to annuity as a form of investment, but it does not exactly work that way. According to some experts, insurance companies use these contract to lock you into obligations such as now allowing you to pull out even if you want to, although it is possible you’ll just have to pay a massive cost.

The chief executive officer of the Asset Retention Insurance Services said that this is not something new in the industry, in fact, it actually started in Ancient Rome wherein people would have to pay once and in return than would be required to pay for a lifetime. This allegedly became incredibly popular during the Great Depression since most people are worried that the stock market will so untangle that it would affect their retirements.

However, nowadays pension plans are no longer that big which is why more and more people are looking into annuities to be able to manage their money. Annuities give that idea that those who have it will never have to worry about money again since they will have a guaranteed income for as long as they live. So basically, they will give you limited access when it comes to your funds so that you won’t be at risk of losing it just because you don’t know how to budget.


To Buy or Not To Buy

Most people often catch themselves in the middle of a dilemma over thinking about putting themselves in an annuity or not. Some experts believe that there are times when you should know it is time for you to get one. Just like when you have been witnessing how the stock market has been so unstable lately and it is really freaking you out. Your financial adviser may let you decide this one on your own but for your peace of mind, you could totally just get annuity since it would give you a reassurance that you’re protected no matter how high or low stocks get. This is such a crucial decision especially if you’re just a few years away from retiring.

Another thing to consider is if you can’t get life insurance. Keep in mind that annuity will be able to serve as life insurance because it is technically an investment contract unlike in life insurance that you have to qualify for. There are instances that health-related conditions often gets you rejected with life insurance, so annuity is your most ideal alternative. That is because the contract will include the name of your spouse or children as your beneficiary and it will automatically be passed on to the person once you die.

However, despite all that you also need to understand that there are downsides of having an annuity. One of them is having to pay for high fees so before signing the contract, make sure that you are aware of what you’re paying for. Another thing you need to know is that you will be required to pay for the annuity income tax. Annuities are also not insured by the FDIC so be sure to understand how the policies work in your state. These are just some of the potential drawbacks that you must look into before you decide since everything has its own advantages and disadvantages.

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