Buying an annuity is a very practical way nowadays. However, fixed annuities have its own disadvantages along with its advantages. These pitfalls needed to be assessed carefully by annuity candidates before buying one in order to avoid complications after.
The very first thing to keep in mind is that withdrawals from annuities may be taxable. It may be taxed as an income. If you are a high tax bracketed person on the time of your retirement, then this may not be a good thing for you. Commonly, a withdrawal from annuity consists of a taxable and a non-taxable return of investment. If you withdraw a taxable earning before the age of 59 1/2, the IRS will probably give you a penalty of 10% of the amount of your gain in addition to your usual income taxes. So aside from the tax dilemma, investing too young may not be an ideal thing to do for there are greater chances for you to really need money before the age of your retirement. Early withdrawal cause dismay to annuitants because of its hidden fees like the one mentioned.
There are also expenses and fees you have to deal with which can also be considered a hidden fee if your agent does not orient about it to you from the beginning. Processing annuities require administrative works and therefore needs administrative fees. A fee like these varies from one insurance company to another so the fees you need to pay might be higher or lower than your expected amount. Aside from the fees you need to pay to the insurers and the administrators, charges from withdrawing money from your first year of investment may be put on you. It usually starts with the 7% of your gain then slowly declines from year to year. These fees and charges might make annuities less appealing and less desirable to some prospective annuitants. However, one feature of fixed annuity is that they annually give a 10% withdrawal allowances to annuitants after the first year with interest only and no charges or penalties. But, this withdrawal allowances only apply to income earnings. This sounds great but if you really need to withdraw more than the allowance given to you, this withdrawal allowance will not be helpful to you at that time. If you really don’t want to incur penalties, then you must not exceed to the percentage allotted for you to withdraw.
A very good time to get an annuity is when the guarantee rates are high. Some guarantee rates of fixed annuities, however, are not exactly the expected rates by the annuitants. You should always ask your insurer about the real span of the rates guaranteed by the annuity because fixed annuities definitely have limited scope of guarantee rates. There are instances like agents advertise having a 6% guarantee rates but when you ask them how long it would last, they would say that it is applicable on the first five years when you have a 10-year annuity. So, it is recommended to always read the contract carefully regarding this subject to avoid further misconception.
Before getting a fixed annuity, you have to broaden your horizons. Fixed annuity may at times be very expensive compared to other insurance like life insurance for example. You have to decide what you really need and want. Contracts of fixed annuity are complicated ad to some people. There are possibilities that they would end up paying a great deal of money to an investment that would not serve its purpose to them.
These cons of fixed annuities may not necessarily be experienced by everyone. Sometimes, the right investors outlooks these cons because the pros outweighs it. That is why before leaping into buying fixed annuities, it is important not only to look at the pros and cons but also to know the right kind of insurance for you.
Equipped with the right knowledge, you could be a vigilant buyer. Enter your zip in this page and start practicing your vigilance.