The world of finance can be a scary place, difficult to understand and navigate. Even if you understand how to manage your finances, it can be hard to do anything other than simply hang on. Things like lump sum versus annuity payments only serve to confuse you more. We have put together a basic guide to help you understand annuities, to get you on track to make your money work for you.
What are annuities?
Annuities are sums of cash paid out every year. It is usually the same amount of money at the same time every year. They are available in different sums, and can be paid out in numerous payment cycles. The most popular timelines are paid out over the course of 25 years, or paid out until death.
What are the benefits?
The biggest benefit of an annuity is that you get paid every single year without fail. It gives you a source of money if you are retired or not working, when you may not otherwise have access to any cash. The other great thing here is that you put your money to work for you, because it’s put into a pool with money from other investors.
What should I be aware of when investing?
You need to watch how much you are charged each year for your annuity. Variable annuities from mutual fund companies can be as low as a 2% charge, while the average sits around 3%. But if you are not careful, you can fall into the trap of some companies who charge a penalty of about 6 or 7% for your first seven years! Make sure you understand what you are signing up for before you sign any paperwork.
Can I sell my annuity?
Selling your annuity and selling fixed annuities is easier than one might think. You can get a lump sum in cash for selling them. If it’s your first time selling your annuity though, it’s in your best interest to use a financial advisor as a middle man.
Do you understand annuities slightly more? Do you think you’ll ever invest?