Avoid These Mistakes When Purchasing Annuities

The idea behind purchasing annuities is to put yourself in position to be financially covered in your later years in life.

While annuities can be a great financial vehicle for investors, there are also some miscues that you should avoid along the way so you do not put yourself in financial trouble.

Among the things to avoid with annuities would be:

• Do not depend too heavily on annuities, as there are both positive and negative aspects of using them for retirement income. The best recommendation is to use alternative income and growth possibilities in conjunction with annuities. This is especially true when you have a long investment horizon prior to retiring.
• Be sure when dealing with annuities to consider the estate implications they involve, as you could potentially miss the opportunity to use them as estate planning aids. In the end you could use them as a detriment to your estate value.
• Keep in mind that qualified annuities typically offer tax incentives during the accumulation phase. At the time of the annuitization phase, annuity payments can be taxable as income. On the upside, tax deferred growth provides a major advantage in the accumulation period. Tax treatment of annuities is also positive for immediate annuity payments, as these payments will not be taxable. If you lack consideration for the tax implications of annuities, it doesn’t help you to gain the full opportunities.
• Another problem is receiving annuity benefits too early. The late down the road you decide to annuitize, the greater your annuitization rate, along with benefits, would be.
• You can also make a mistake by failing to factor in inflation in looking at the real value of annuity payments down the road. Be sure to know how much retirement income you will require. It is important to be able to assess the real value of your projected annuity payments in light of your income needs down the road.
• Annuity owners should also avoid placing minors in the role of owners and/or beneficiaries of annuities. Given that minors do not have the legal grounds to execute a contract, they are unable to execute policy-ownership rights and cannot annuitize or make withdrawals.
• You also do not want to assign or pledge an annuity, as this can lead to adverse tax problems for the owner.
• Finally, it is a mistake to not fully grasp the creditor-protection advantages of annuities. Annuities can be viable asset-protection vehicles in some states, and many states have a statute that deals with how much, if any, an annuity is exempt from the claims of creditors and in a bankruptcy. This also includes annuity cash value and annuity income. Be sure to check with an attorney in your state, as a few states have an exemption that is unlimited, while others place a cap on the exemption, which can be very minimal.

At the end of the day, do your homework on annuities and speak with an experienced annuity expert who could have you on the way to a financially happy retirement.