should I buy annuity?

Question

Hi I like to know, I should open the annuity account, I am 40 years old and I have 401k, Roth IRA and reqular whole life insurance with me for 15 years, I also have 30 years Fit term life, I have some extra $50,000 to invest, is that good idea that put money on annuity?if so, what kind and why? Thanks..

Answer 1

Annuities are not for everyone, but they are certainly the most appropriate option in many situations. I agree with the previous poster that at your age you should take full advantage of your tax qualified plans first. Contribute to your 401(k) to the extent that your matching contribution is maximized, and no more; then max out your Roth.

There are a lot of common misconceptions about annuities. One is that they have high fees. First of all, all illustrations of annuities are post-expense, so it's pretty easy to make fair comparisons. Also, except for fund expense charges in a variable annuity, fees in an annuity tie directly to guaranty features that are not available in any other vehicle. Annuities are offered in an incredible variety of types and features.

See an independent financial advisor who can discuss many options from several companies in order to ensure objectivity.



Addendum: Another poster claims that annuities can have surrender periods as long as 30 years. I have never seen one greater than 12, and most are around 6. Yet another claims that rates are too low. Fixed annuities pay higher than the prevailing interest rates, tax deferred no less; variable annuities pay according to the portfolio within them; and the equity indexed product I just recommended for my father has posted an average of 10.27% over the last 10 years, with NO risk to principal. Tough to beat, dude.

Answer 2

First, there are many factors that will affect the extent to which an annuity is appropriate for an individual, so you should consider your need for liquidity, tax bracket, purpose for investing, length of the contract, investment options in the annuity, payout options, and other factors before making a decision. Generally, the fees on an annuity are higher than those associated with other investments like stocks, bonds, mutual funds etc. Because of this, one should usually maximize contributions to 401ks and IRAs before pursuing other tax deferred vehicles. It sounds like you have planned wisely, and I believe that any time someone can afford to pay the taxes and use a Roth IRA you give yourself a huge advantage in the future. At 40, you will earn interest for 20+ years and never have to pay taxes on it! The annuity, on the other hand, only defers the taxes until you access the money. Also, be aware that you can sometimes incur a penalty for accessing the money too early. I realize this is a lot of information, but the bottom line is that unless you have maximized all other tax-preferred options and are completely comfortable with the interest you'll receive and liquidity you'll lose you'd probably be better off putting that $50,000 in other vehicles over the next 3-4 years. Good luck!

Answer 3

You should look at the annuity and what it offers. Pay close attention to when you can start getting your money because many of them will have you wait 30 years. Add it all up and subtract what you put into it. That's your gains. Then you go to some place like here
http://www.moneychimp.com/calculator/compound_interest_calculator.htm

Then you put in your principal and the same number of years and see what percentage it takes to get the gains that the annuity offers. I think you will find that your gains will be between 4% and 6% compounded from an annuity. You can get about that much in a money market, TIPS (type of government bond) or I-bond and have fewer penalties on pulling your money out (annuities are loaded with penalties). That's why critics of annuities don't like them.

Answer 4

You could invest in an annuity but remember that an annuity is not for everyone and it depends on your needs and tolerance for risk if you will be able and will be willing to have an annuity. In your case, it is alright to invest in one to support the rest of your expenses during retirement. If you want a fixed interest rate, consider a fixed annuity. If you want something that could keep up with inflation and still be safe from having too low interest, you could have a fixed indexed annuity. Moreover, if you want something that will give your money more potential growth, you should get a variable annuity whose rate depends on the market.

Answer 5

Annuities, pay too little money at todays interest rates.