When you begin financial planning, you will almost certainly hear the word annuities Ocala FL being tossed around. Just how much you know about annuities can make the difference between smart financial and retirement planning and ending up broke after your retirement.
What is an annuity?
At it’s most basic form, an annuity is just a contract. Your insurance company enters into a contract with you that guarantees they will pay you so much money each month until you die. It does sound a little morbid, but annuities are a staple in smart financial planning and can make a huge difference in your quality of life after retirement.
How is it calculated?
Traditionally, annuities are set up by insurance companies where the company basically makes an educated guess about how long you live and agrees to a fixed payment each month until you pass on. It’s great for you if you outlive their expectations because you will get quite a bit more money than you had to invest. However, most annuities are not set up this way anymore. Many annuities today offer flexible payments, for both you while you are funding it, and for the insurance company once it matures, that have a higher payment with a higher payout if the market securities rise, and a minimum payment if it falls below a certain point. This allows for inflation in a way that fixed amount annuities does not.
What are the downsides?
Although annuities are popular, and stable, forms of financial planning, there are downsides to owning them. To start with, they are expensive. Many annuities pay out around 5% of the total per year. That means to receive an average of $2000 a month, you would have to invest about $500,000 dollars into your annuity.
Another downside is the fees that are attached to the annuity. There are fees for everything from joint survivor benefits to inflation adjustments, and the more guarantees you have on your annuity, the more fees you should expect to pay.
Finally, remember that annuities are not the only answer to sound retirement planning and may not be right for your family in the long run. There are many options available to prepare and save for retirement, and nothing is going to replace a trustworthy and experienced financial planner in helping your make the right decision based on your individual situation.
