Younger Investors Should Avoid Annuity Mistakes

For those individuals who are delving into annuities for the first time, there are certain mistakes to avoid so that you do not end up on the short end of the deal.

The biggest challenge can be selecting the right annuities and the right amount to balance out your investment needs.

When it comes right down to it, annuities have beneficial features along with potential potholes.

Annuities are well-suited for some individuals and their particular life needs and badly-suited for other individuals and their circumstances.

As many individuals often discover, annuity investment miscues are the result of mistakenly matching annuities to particular investors and details, or from over-or-under allocating annuities inside certain portfolios.

In measuring potential mistakes, a major mistake could be one that is high in costs as far as monetary terms.

For the young investor who is not fully up to speed on annuities, these items are long-term, retirement-oriented investment vehicles. They are long-term due to the fact they almost usually have surrender charges that penalize the purchaser for taking out money within a decade or so.

When it comes right down to it, individuals have to hold the annuity for 10 years or more to avoid the surrender-charge issue.

Investors should take note that the IRS levies a 10 percent penalty on annuity withdrawals taken prior to the holder’s age of 59 ½. (That is in addition to the ordinary income tax paid on the withdrawal).

Another reason for looking at annuities as retirement vehicles is that their signature feature – annuitization, or withdrawal of level periodic amounts for life – is slated to taking income from the investment.

Before retirement, the main concern is with growth – getting wealth to increase as steeply as possible. In retirement, the focus moves to income, which is what annuities come down to.

Should a young investor make a mistake with annuities, it can be big due to the fact that younger individuals require aggressive growth and liquidity, whereas the annuity focus is toward conservative growth, income and relative illiquidity.

Remember that young individuals are focused on investing for a retirement that is a number of decades away, while annuity investors are getting ready for a retirement that is not that far off.

For those who believe in early investment in annuities, they may wish to use the immunity of life insurance products from liability judgments as a protector against losing assets. Therefore, they may have more liking to shielded equity investments in variable annuities to naked investments in stocks or mutual funds. This is of course provided their state law permits the shield.

Finally, sometimes the most egregious investment is the one the individual does not make.

The failure of a conservative investor to acquire an annuity could easily result in disaster.

Given that life expectancies are increasing, it is possible for some individuals to exhaust their funds by the time they reach the ages of 85 or 90.

It may be the scenario where an aggressive, risk-loving investor might think of the potential for gain to justify the risk. For the true conservative investor, however, the outcome can be disaster.

Whatever your annuity interests are, be sure to do your research and get with an expert who can help you along the way.