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Common Questions to Ask about Annuities

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As you start your research about annuities as a form of retirement investing, many questions come up. These are some common questions that you should ask about annuities before you even think of buying one.

* When Should I Buy an Annuity? – The most common time to buy an annuity is sometime after age 50, usually around age 60. In fact, many financial planners do not recommend buying an annuity until you’re over 60, with a few exceptions like protecting a large windfall or leveraging the money while you invest in other high-risk options like stocks.

* Are Annuities Right for Everyone? – The short answer is no. Some people will not benefit from an annuity. Anyone who doesn’t expect to live a long life probably isn’t a good candidate for an annuity. The idea of an annuity is to provide a lifelong, guaranteed income that is safe. Because it’s a more reliable way to provide lifelong retirement income, it’s less profitable than other types of investments. In fact, most people don’t consider an annuity an investment but rather, an insurance policy.

* What Happens to My Annuity When I Die? – It depends on your contract. However, you can tell your agent at the time of purchase that you want to protect your spouse or another loved one with your annuity if you die. They will let you know how this works and if there are additional costs or considerations.

* Can I Sell My Annuity Contract? – You can, but you won’t end up making any money off the deal if you do. Sometimes people do sell their contracts to get a lump sum payment that they can use for something like cancer treatments. However, this is a poor use of an annuity no matter what the salesperson tries to tell you. It’s just as bad as a reverse mortgage.

* Will My Heir Have to Pay Income Taxes If They Collect on My Annuity after Death? – Yes. While you may or may not pay income taxes on your payments received (depending on your contract), all the money your heir receives will be taxed as ordinary income.

* What Are the Most Common Fees Related to Annuities? – Some common fees are mortality and expenses, administrative fees, surrender charges, and investment management fees. There may be other fees than this, so be sure to ask before you sign. In fact, try focusing on the total amount of the fees rather than each individual fee so you can keep it straight.

* Do I Pay a Penalty for Early Withdraws? – Yes. In some cases, you cannot withdraw the money at all. You need to pay attention to your contract. Make sure you have emergency funds and other savings to access if you need it. An annuity is not available money for you to spend, and it is costly to use it other than for your regular payments.

* When Can I Start Collecting Payments? – Depending on your contract, you will collect payments when it states, but, in most cases, you cannot start collecting until you’re 59.5 years old. Some might be later if you bought it later.

* Where Do I Buy an Annuity? – To sell annuities, an agent needs to be licensed to sell life insurance in your state. Some insurance companies like USAA that are also financial institutions offer annuities, but you can call almost any life insurance agency and talk to them about annuities.

If you think of other questions about annuities, make sure you get answers to your questions before you buy. Try writing down your questions before talking to an agent about buying an annuity. That way, you won’t forget anything that you need to ask to make an intelligent choice.