Are you considering buying an annuity? Are you concerned about interest rates and how that may affect your annuity? If so you are not alone in these concerns. And this is an area where a good financial planner can be very helpful. As you get closer to your retirement, you and others are looking for ways to supplement your retirement incomes. And annuities can play a major role in planning for your retirement and possibly making it better than you had planned.
One of the first things that you need to consider now is when will interest rates rise. It is only a matter of time before the Federal Reserve will raise rates but it is anyone’s guess when that will be. But interest rates are only one part of the complex nature that are annuities.
A second and maybe even as an important aspect of annuities are the fees and expenses associated with ownership. Depending on the annuity there can be some excessive fees that come with its ownership. Surrender fees alone can be as high as 10% of the value of the annuity. That is a huge piece of principal that you will lose should you decide to pull your money from the annuity early. Management fees can also eat into your profits of the annuity as many of these products do not have the investor’s best interest in mind. The have the insurance company’s bottom line in mind when they develop their fee structure.
Another thing that people need to consider when purchasing annuities is their life expectancy. Depending on how long you wish to receive payments will determine your annuity check. A sole survivor with no rights of survivorship can expect to get more than someone who has joint rights of survivorship.
Some people ladder CD’s in their retirement to avoid getting caught in a low-interest rate environment. The same can be done with annuities. If you are worried interest rates are too low and will rise it is easy to ladder annuities just as you would a CD. This way you have the opportunity to get a broad range of interest rates for your annuities.
But there are risks associated with waiting on interest rates or other factors. Mainly you have the loss of opportunity and could expose yourself to interest rate sensitivity. These are factors outside of your control but ones that you can influence to a degree. Only you can tell if the risks are worth it and you should wait for any number of factors that can influence your decisions.
Always it is wise to shop around when looking for any financial product. Not all annuities are the same just as no insurance company is the same. Look for one that is a good fit for you and your needs. And always look into the financial health of an insurance company as these will need to be around for many years to pay you the annuity. When things are all basically the same, they should act in a similar manner. If one company is paying a lot more than the others, it is a red flag and one that needs to be looked into closer.
In the event, you hired a fee-only financial planner it is time to use them to achieve your goals. Financial planners can paint a picture of your entire financial situation provided you have given them the necessary information to do so. They can develop a plan to advise you on the ways to maximize your retirement and how to best achieve this goal. It may or may not include annuities, but a financial planner can assist you in making these decisions. Social Security and any pensions need to be considered when purchasing an annuity for your retirement. It is best when looked at as a whole and not as a single piece.
Yes, the current interest rates complicate the decisions surrounding the purchase of annuities, but that does not mean that you cannot use them wisely. Even with rates this low, there are annuities that can achieve the goal of providing you a steady stream of income in your golden years. Seek the advice of a good fee-only financial advisor and utilize an annuity to maximize your retirement and take full advantage of all of the available resources for income.
If you have any questions or need any additional information, please feel free to contact me directly or leave a comment on the post for others to learn from. Thank you and see you back soon.
