Can You Draw on Annuities at Age 55
If you don't have a pension and want a regular income to supplement your Social Security, annuities may be a good option. Annuities are not all the same, and even within variable and fixed annuities there are a number of differences. Do your research before making any decisions. Here are 10 facts about annuities to get you started.
At the most basic level, annuities involve you paying a specific sum of money to an insurance company, and in return, that company paying you a monthly set amount every month. Eventually, the monthly payments you receive add up to the original amount you paid, but even after that the payments continue. This is called the payout phase, and can continue for the rest of your life.
Variable Annuities
A variable annuity doesn't carry a fixed rate of return. Instead, the rate of return is based on the performance of the subaccounts into which the annuity is placed. Variable annuities have the advantage of giving you more control during retirement, since you can choose the subaccounts into which they are placed.
Fixed Annuities
Fixed annuities, on the other hand, provide a minimum fixed amount, and may be a good option if you are more risk-averse. In this case, the insurance company takes charge of investing your money into high-quality subaccounts. Fixed annuity rates vary, as do fixed annuity returns. For example, five-year fixed annuity rates are going to differ from shorter-term plans.
Deferred Annuities
A deferred annuity is useful if you're looking ahead to have a regular income at some later point in time, whether that's in a couple of years or a decade. One advantage of this type of annuity is that your premiums grow tax-free during the period leading up to when you start receiving them.
Tax Advantages
The tax advantages of deferred annuities may make them worthwhile for people who don't necessarily need the income immediately or in the near future. If you are in a good financial position right now and want to make sure you've got a continuous stream of income starting at some later point and lasting until the end of your life, then this might be a good option.
The Insurance Company Matters
Shop around to get quotes from various insurers before making any annuity decisions. Choose a highly graded insurer, and make sure you take the time to fully understand their payout terms and any penalties that you may incur should you decide to withdraw earlier than planned.
The Commitment
It can be hard to wrap your head around keeping your money tied up in something like an annuity. It can be difficult not to feel like you don't really have control of your own money. But something like a lifetime annuity can lesson the pain when you consider the fact that it will keep paying you no matter how long you live.
Not Everyone Needs It
Not everyone needs an annuity. An annuity ensures you'll have a guaranteed regular income for the rest of your life, but if you have a solid pension from your employer, Social Security or your own savings, an it may not be necessary.
Commissions
Fees for annuities vary widely, and all annuities come with commissions. Commissions are usually built in to the cost of the annuity itself, and tend to vary (up to a maximum of about 10 percent). Be sure to ask your agent what the commission is before you buy, as it's not always obvious.
Withdrawal Penalties
It can be extremely difficult to get out of an annuity early. While not impossible, cashing out early will typically incur steep withdrawal fees. Keep in mind that most annuities do have a free look period at the beginning where you can exit penalty-free should you decide the annuity is not for you.
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Can You Draw on Annuities at Age 55
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