We live in a world where people are retiring well before the average life expectancy. With the average lifespan now into the 80's, it is possible for people to spend a third of their lifetime in retirement. So it is no wonder that they want to set up something like an annuity to help with their retirement. As with most things of this nature, there are various pros and cons of annuities, just as there are with almost any investment. Basically, an annuity is an investment which allows a person to defer taxes and collect payments for a predetermined amount of time. While this sounds great, annuities comes with some downsides as well.
If you have already invested as much as you can in your 401k, Roth IRA or traditional IRA, an annuity allows more tax deferred payments to be made for retirement. The tax deferred payments can be attractive because of their apparent level of return. This can be deceptive and, when considering the pros and cons of annuities, the downside is that fees can often cancel out the benefits of the tax deferment. While the tax efficiency is attractive, there are setup and administrative fees to consider. In addition, there is a lofty early surrender fee if you need the money sooner than you planned.
Another apparently attractive option are reverse annuity mortgages. This kind of mortgage allows a person to take tax free payments borrowed against their home equity. For low income seniors looking for lifelong financial aid for personal or medical reasons, it can mean they receive tax free payments until their death. With the pros and cons of annuities both being considered, it is important to understand what happens when the person passes away.
The biggest drawback is that the lending agency gets complete control of the real estate. This is because the only way most banks will consider a person for a reverse annuity mortgage is if their house is entirely paid off. With the increase cost of living, most people are well near retirement before they qualify. Typically the bank will have strict requirements before they will consider anyone for a reverse annuity mortgage. This may be a good option for someone who requires assistance for the remainder of their life, but the choice is not to be made lightly.
While considering the pros and cons of annuities, there appear to be many positive aspects. The positive aspects are always plain to see. The problem is that there are also many smaller negative effects which can be initially hidden or even disguised by the lender. Some people do not notice these small fees and deductions until they have already gotten too deep into the agreement. These plans should never be entered into without assistance. An asset management advisor can help with that. Working with an asset management advisor can make the process much easier to understand and keep you from being led into a financial trap.
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understanding annuities and how they work for your retirement. You can also get valuable free beginners guide to safe investing here:
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