Last week the NPR staff discussed annuities and some things you should look out for when considering the investment in your future. In “Annuities Explained: The Choices and Red Flags,” they got some of their information from Kiplinger’s Kimberly Lankford. While she certainly isn’t a big supporter of annuities, she gives good basic information and tells you what to consider before making your purchase. Due to the fact that insurance companies and others who sell annuities make $200 billion of annuity sales each year, there are bad business practices out there. But the majority of annuity sales help consumers create a private pension that will finance their retirement with savings from 401k and other vehicles.
With choices between immediate and deferred, fixed and variable, and everything in between, you need to make sure that you understand your annuity product before making a purchase. Get a recommendation for a reputable financial advisor specializing in annuities or find one on our website. Young Baby Boomers helping older parents and older Baby Boomers in retirement are often targeted by those selling annuities. They aren’t all bad, just make sure you read about your annuity and ask questions when you have them. Some of the things that Ms. Lankford warns about are valid concerns that you should definitely understand before getting into a contract.
Surrender fees are there so that you leave your money in the annuity for a certain period of time. Don’t take money out of your annuity before the surrender period is up because the fees you will pay are not worthwhile. Have other money saved that you can easily access if you need money right away. Elderly people buying an annuity need to make sure that any surrender period expires well before they will need their annuity payments. While switching to another annuity with different benefits is often a good idea, don’t work with a salesperson trying to “churn” your annuity just so that they get more commission. This won’t be a concern once you find a reputable person to work with.
We’ve written recently about all of the companies looking to buy back the guarantees on old annuities so that they won’t have to lose money. This is likely not a good deal for the investor, but if you are looking to get out of an annuity then it might be worth it to you. Seniors who own old annuities are probably better off keeping their guarantees. Finally, annuities are often associated with “free lunch” seminars. Unfortunately, these are typically run by sales teams who are pushy and want to sell annuities regardless of their match to the consumer. While you will probably get good basic information about annuities, it’s usually not a good place to actually make a purchase. Do your own due diligence when it comes to annuities and make sure you are working with someone keeping your interests and needs at the top of their mind.
Written by Rachel Summit