Pop quiz: What’s the definition of an annuity? No, it’s a not a trick question. What’s interesting, though, is that while the majority of Americans want annuities, few actually understand the concept of them.
According to The Motley Fool, “an annuity is a product sold by an insurance company where you make a lump sum payment in exchange for guaranteed income.” Think of an annuity as a way to create a guaranteed stream of income from your savings. Now that you have a general idea about these high return investments, here are some little-known facts when it comes to annuities:
There are several types of annuities
Tactical Wealth revolves around fixed income. With that in mind, the two most common types of fixed annuities are deferred and immediate annuities. It’s important to account for your current financial situation before deciding which annuity makes the most sense.
Let’s begin with immediate annuities. This type allows you to receive your dividends as soon as you deposit your initial investment. Those who opt for immediate annuities will also benefit from lower fees compared to other types.
Then there’s what investors refer to as deferred annuities. In contrast to immediate annuities, the deferred variety may take several years before generating steady revenue. If you still have several years to go before retirement, deferred annuities may be a sound financial option.
Annuity fees can be high
Per the fiduciary standard, advisors are required to act in your financial best standard. However, if your advisor is not held to this standard, they may aggressively push annuities on you.
Why is this worth mentioning? Well, annuity fees can be high, but especially with variable or indexed ones. We recommend avoiding the salesy folks and contacting the friendly staff at Tactical Wealth instead.
The last thing you want is to be hit regularly with outrageous annuity fees.
Annuities are not protected by the Federal Deposit Insurance Corporation (FDIC)
Think about your savings account for a moment. Those funds are protected by the FDIC up to a certain amount ($250,000 at some financial institutions, for example). It’s a different story, however, when we discuss annuities.
What many retirees and soon-to-be-retirees don’t realize is that a failed insurance company can totally wipe out your annuity payments. So what’s our advice to prevent such a catastrophe from happening just before you reach your golden years? Well, you may want to consider splitting your money into several annuities issued by different companies.
The Best Fixed Income Annuities
Annuities can be complicated. At Tactical Wealth, we want to help you make sense of these high return investments. If you haven’t already, be sure to check out a recent blog post titled ‘Annuities For Beginners.’
By now, you’re probably more curious about annuities and whether they make sense for you. But wouldn’t it be nice to benefit from the investment piece of annuities without dealing with high investor/commission fees, low-interest rates, and general complexities?
There is a way. When looking at our fixed income fund vs. annuities, Tactical Wealth comes out on top.
Contact us now to ask about our annuity alternatives.