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Traps to Avoid

Traps to Avoid When Buying an Annuity

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For anyone interested in the prospect of investing now for future gains, annuities have a lot to offer. This investment option includes giving a lump sum of money to an appropriate investment firm in exchange for annual payments with interest. In the meantime, the investment firm turns around and invests your money elsewhere, yielding higher rates of return so that they can pay you out (along with other clients) and earn a profit along the way. So why would you give them your money? Simple: security. Whereas the stock market suffers ups and downs that you might not be able to weather, annuities are fixed. You get a set amount of money for a set amount of time, earning back what you invested, as well as an agreed-upon percentage of interest. But it’s not all wine and roses. If you want to invest in annuities wisely you need to be aware of potential pitfalls so that you can avoid them.

Traps to Avoid

The first trap to steer clear of is loss in the case of death. You naturally want any remaining money to be passed on to beneficiaries in the event of your untimely demise. But if you select the wrong options this won’t happen. Instead, the investment group will keep the remainder of your money. You can, however, choose a plan whereby your annuity will continue after your death, with beneficiaries receiving the same payment structure you enjoyed until the bargain is fulfilled. You will likely sacrifice a small percentage of interest by selecting this plan, but you’ll have insurance that your money will go to your loved ones when you’re gone.

You also need to understand the difference between immediate and deferred annuities. The former is pretty straightforward. You provide a lump sum for investment, after which you begin receiving smaller payments immediately. With a deferred annuity, you may have to let your money sit for several years without the ability to access it, but you stand to earn significantly more in interest so that when you are able to start receiving payouts, they’ll be much higher. And you may even get guarantees like set monthly payments for the remainder of your life, regardless of how long that might be. Again, however, you need to read the fine print and make sure the money will go to a beneficiary if you are not around to receive the full benefit.

Finally, you need to make sure not to invest money that you’re going to need sooner than the annuity pays out. You will not be able to access the money in part or in full once it is out of your hands. Your only option will be to collect on the annuity. Even if you are able to cash out your annuity, you will pay such a hefty penalty that you’ll likely end up losing more than you put in initially. You can always partner with a reputable company like Dolphin Asset Group that offers annuity buyout  packages if you need to get your hands on your lump sum immediately, but you’re going to have to give up a percentage of the overall value in this scenario, as well. The point is that you need to do some research, understand your options, and consider long and hard before you buy an annuity. Making an informed decision is the key to making your money work for you.

About Post Author

Tiffany Hurd

The writer of this article currently manages his own blog and is managing to do well by mixing online marketing and traditional marketing practices into one.
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