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Annuities, with the fine print up front
An annuity is a contract with an insurance company. You pay in a lump sum or a series of payments, the money grows tax-deferred, and it can pay you income later, including for life. Fixed annuities pay a set rate. Indexed annuities credit interest based on a market index, with a cap and a floor.
Who it’s for
- People nearing or in retirement
- Anyone who wants part of their savings out of the market's ups and downs
- People who want predictable monthly income
- People who've already maxed out their IRA and 401(k)
What I check before I recommend it
- The surrender period: how many years before you can take out all your money without a charge.
- Fees and rider costs, in writing.
- How much you can withdraw each year without a penalty.
- Whether you might need this money sooner. If you might, I'll tell you not to tie it up.
In plain English
How annuities works
An annuity trades access to your money for predictability. That's a good trade for some savings and a bad one for others. The questions that matter are how long the surrender schedule runs, what it costs, and whether you could need the money before you're free to move it.
Withdrawals before age 59½ can carry a federal tax penalty on top of any surrender charge. Ask your tax advisor how an annuity fits your situation.
Questions
Annuities questions people ask me
Are annuities a good idea?
For some people. An annuity trades access to your money for steady, predictable income. Before you buy one, you should know how long the surrender period runs, what the fees are, and whether you might need the money sooner. If you'll need the cash, I'll tell you not to buy one.
What is a surrender charge?
It's a fee for taking out more than the allowed amount during the first several years. The charge usually shrinks each year until it's gone. I'll show you the full schedule before you sign.
What's the difference between a fixed and an indexed annuity?
A fixed annuity credits a set interest rate for a set period. An indexed annuity credits interest based on a market index, limited by a cap, with a floor that protects you from index losses. Indexed annuities don't invest directly in the market.
Can I get my money out of an annuity early?
Most annuities let you take out a portion each year, often around 10%, without a surrender charge. Taking out more early triggers the charge, and withdrawals before 59 and a half may also face a federal tax penalty.
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Let’s figure out what your family needs.
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