Home - insurance - 9 Common Annuity Mistakes And How To Avoid Them
9 common annuity mistakes and how to avoid them

9 common annuity mistakes and how to avoid them

An annuity is a contract that binds the insurer to make a series of payments at regular intervals. They can be a valuable investment tool, especially for one’s retirement. However, people may make many mistakes when signing up for these, causing them to pay big sums in interest or deal with losses. Read on to find out more about nine common annuity mistakes people make and how to avoid them.

Choosing the wrong insurance provider/annuity
Investors can choose between five basic annuities – fixed dollar amount, inflation-adjusted, variable, guaranteed minimum withdrawal benefit, and guaranteed lifetime withdrawal benefits. Each of these has its own pros and cons, and choosing the right type is important to meet one’s financial or investment goals. Additionally, investors also need to pay close attention to the insurance company. These policies must only be purchased from highly reputable companies with a solid financial strength rating.

Overlooking the costs
Annuities are an expensive investment; failing to pay attention to the fine print when signing up could result in major losses. Just like other retirement tools, annuities too have associated fees, charges, and commissions. Most commonly, these include mortality and expense fees, administrative fees, surrender charges, investment management fees, and charges for optional riders. Carefully examine these charges when reviewing annuity options. Consider the total cost, as opposed to just one or two aspects of the plan, to determine the best option and avoid hefty fees.

Failing to understand how it works
It is crucial to understand how any investment plan works before signing up for it. With an annuity, this involves analyzing the costs and fees and how the payout will be calculated and delivered. There are two types of annuity payouts – for a lifetime or a predetermined period. Use an annuity calculator to compare plans and choose the best one. Getting lost in the jargon can be easy due to the technicalities involved. Salespeople may mention terms like fixed and variable annuities, index returns, mortality fees, surrender charges, etc. Ask the insurance provider to break these down into simple terms so one can make a better-informed decision.

Not listing one’s spouse as the beneficiary
For married couples, investing in a joint-life annuity or naming the spouse as the beneficiary may be a good idea. This could have a major impact on the total sum received from the insurance provider. Here’s how these two plans differ:

Joint-life annuity with IRA as beneficiary
The spouse only gets the actual sum owed at the time of the partner’s death.
Joint-life annuity with spouse as beneficiary
Regular payments continue as before (for the rest of the spouse’s life).

Ignoring the impact of inflation
With an annuity, investors receive their current payments in the form of future payouts. However, with rising inflation rates around the world, there is always the possibility of money losing its value during this time. To settle this, investors have two options – to make bigger annuity payments to adjust for inflation or to purchase an annuity that has an inflation protection component.

Investing too much
When it comes to investments for the future, it is best to take a balanced approach to one’s portfolio. Although they pay more interest in comparison to CDs and fixed deposits, annuities are generally considered to be an inflexible investment. This means that once money has been given away to an annuity, it cannot be taken back. Experts suggest investing no more than 25-30% of one’s assets in immediate annuities.

Skipping research
Don’t jump the gun on research when it comes to investments, especially for annuities. All providers have their own fees, charges, and terms and conditions that one needs to carefully consider before investing. Learn about the various annuity options available, and then reach out to providers to discuss the best plans for one’s needs. Lastly, check the insurance provider’s creditworthiness with rankings from companies like AM Best, Standard and Poor, or Moody’s. This can assure one about the provider’s ability to pay the annuity amount in the future.

Not considering an annuity at all
One of the biggest mistakes people make is perhaps not choosing an annuity at all. While the initial charges may seem high, this investment is a guaranteed source of income for as long as one lives. It takes away the risk of running out of money in one’s retirement years. It also helps one set up an additional nest egg for their partners, which can be a source of great reassurance in the later stages of life.

Withdrawing too much money
Some variable annuities allow investors to withdraw about 5-6% of the guaranteed value every year. Withdrawing any more of this amount could jeopardize the annuity guarantee. That is why experts recommend keeping enough money in other flexible investments to ensure continual cash flow.

The complexities involved can make annuities a confusing endeavor. However, as a living benefit, they provide an income stream for the rest of one’s life. Learning more about them before one decides to invest is a wise call – one that can help people ensure a financially secure and independent future. One must be sure to consider the objectives of the investment, associated risks, and all other details carefully before investing in an annuity.

Latest Articles

5 smart ways of using tablet computers
Tablets

5 smart ways of using tablet computers

You see tablet computers everywhere. More and more people are now moving toward tablets in offices, coffee shops, homes, and even schools. This is because they offer more power and uses than a smartphone and better portability than a desktop or even a laptop. Tablets have many more uses than simply checking your emails or browsing social media. Here are some interesting ways to find more uses for your tablet computer: Second screen Some people like to work on two screens at a time due to the demand of their work. This also enhances productivity and cuts down on time. It is easy to mirror your Android to another Android or even a computer. To use your tablet as an extended display, you need to install an application on your computer and connect the tablet to it using a USB cable or Wi-Fi. Some of the best app options to do this include Spacedesk, Google Remote Desktop, iDisplay, Duet Display, etc. As a remote to control electronics Tablet computers can be easily used to control your electronics. A tablet is larger than a remote and much easier to find and operate with better features. You can control your PC and television with it. It can also dim your home lights, open your garage door, and operate your smart fridge and washing machine. For instance, if you have a Sony Smart TV, you can use the TV Sideview application for your Apple and Android systems. E-Reader If you are an avid reader and have an old tablet, you don’t need to purchase a new e-reader. Your tablet can easily be used as an e-reader to browse your favorite books, magazines, comic strips, and even news applications. Since tablet screens have more glare, we suggest getting an anti-glare film on the screen.
Ignore these 8 foods when diagnosed with hyperkalemia
health

Ignore these 8 foods when diagnosed with hyperkalemia

Potassium is an essential nutrient that allows your body to function optimally. A meal plan rich in potassium allows proper nerve function and regulates your heartbeat. However, certain conditions such as kidney diseases and consuming food rich in potassium excessively may increase its levels in your bloodstream leading to a condition known as hyperkalemia . Let’s look at foods you should limit to keep your potassium within normal levels. Bananas The first food that comes to mind when people think of potassium sources is bananas. One medium-sized banana contains almost 422 mg of potassium. Though it would take a lot of bananas to cause an overdose of potassium, if you are also eating other foods rich in potassium, it will lead to excessive potassium levels in your blood, which in turn, will trigger hyperkalemia . Tomato Sauce and Paste Raw tomatoes contain a decent amount of potassium. One medium tomato has about 292 mg of potassium. Concentrated forms of tomatoes, such as sauces, salsa, paste, puree, etc., contain even higher amounts of potassium. For instance, a small cup of tomato sauce contains almost 728 mg potassium. So, it is advised to skip tomato sauce and opt for alternatives such as basil or roasted red peppers. Milk If you have been advised a low potassium meal plan, you must avoid milk or at least its consumption needs to be reduced. A cup of whole milk contains around 350 mg of potassium. The lower the amount of fat in milk, the higher the potassium content. While you may have a small serving of milk daily, it should not exceed 300 ml. It means avoiding milk and dairy products such as buttermilk, yogurt, milk-based sweets, ice creams, and other desserts. Oranges and Orange Juice Oranges have a very high potassium content and are best avoided if diagnosed with hyperkalemia .
7 mistakes to avoid when buying a new computer
Tech

7 mistakes to avoid when buying a new computer

With all the options of computer brands available in the market today, you might think it is effortless to pick up one. However, with so many choices, it can get tricky as buying a computer is a hefty, long-term investment. That’s why you should be aware of some common buying mistakes people would make while purchasing this device. And so, here are a few things to avoid before you invest in a computer : Buying without knowing your needs Never buy a computer just because everyone is buying it or there’s a lot of hype around it. While you may want to prioritize aesthetics and popularity, you need to identify your need for a computer and its software . Make a list of all the features that you would need and get the computer configured accordingly. Unfamiliar with different software programs Not knowing the right software may cost you heavily. Purchasing expensive software with a long list of features may not be the best thing to do if half of these features don’t even apply to your work. Next, know how to install and use the software. You also need to know if the software is protected against bugs with an antivirus program and consider the after-sale service of the software. Not considering different operating systems There are four primary operating systems you should know – Microsoft, Apple, Google, and Linux. While technology has made it easier to switch between these operating systems, you may often find one or more applications not working on alternative systems. So, if you have an expensive software installed, check with your developer if it will be compatible with the OS you plan to get. Not accounting for other computer costs A common mistake made by many while purchasing a computer is not accounting for other costs that are part of the bundle.