Cash out annuity payments today and you can make your own decisions about retirement investments. Yes, an annuity can be a good retirement fund for some people. In fact, while you may have received your annuity as part of a structured settlement for a personal injury law suit, that is not always the case. Many people actually buy annuities when they are young as a way to guarantee themselves income in retirement. Is this a good idea? Let's look at it from a variety of angles.
How an Annuity Offers Retirement Benefits
An annuity is an investment that people can purchase through an insurance agency. With an annuity a large amount of money is invested by a person, and then small payments are made back to that person over an extended period of time. These can be a great way to get paid for a personal injury case, providing you with income for an extended period of time. In this way you can cover your medical care and living expenses for the long term.
So, this would be great for retirement, right? Say you inherited a large sum of money when you were young. You could invest it in an annuity and have retirement money. This is true, but not necessarily a good idea. Even the famous financial consultant Suze Orman is not in favor of annuities for retirement. As Ms. Orman points out, the insurance agents who sell annuities make very large commissions. This means that often they encourage people to purchase annuities because they (the insurance agent) want to make money, not because it is best for the customer.
These agents often make 6% commissions. This means that if you were to invest $100,000 in an annuity, your insurance agent would get $6,000 the minute you funded your annuity. Add to this the penalties for early withdrawal, the low returns and the fact that you lose all control of your own money, and an annuity is not really a very good retirement investment. But, in simple terms, yes, it can offer you money in retirement.
Better Roads to Retirement
For most people it makes more sense not to invest in annuities. There are many better ways to save for retirement. For some people it can actually make sense to cash out annuity plans they already have and move the money to a better investment. Famous financial planners Suze Orman and Clark Howard both list the Roth Individual Retirement Account (Roth IRA) as the best way to save for retirement. Now, if you have an employer who matches your 401K contribution, then you should definitely contribute as much as you can to take full advantage of the match. But after you reach that point, put the rest of your money into a Roth IRA. In a Roth your money will grow tax free; when you retire you can take out the money you put in along with all interest it has earned and owe no taxes. This is by far the best retirement plan.
Mutual funds can also be a good way to save for retirement. A mutual fund is a group of stocks that are collected together into a single "fund" that you can purchase shares of. You can purchase mutual funds inside your Roth IRA, Traditional IRA or 401k plan. You can also purchase them separately, just in a stock market account fund. Many people choose to cash out annuity payments and then put their money into mutual funds. There are many things to consider as far as fees, taxes and more, so be sure to consult a tax accountant or financial adviser about such decisions.
If you think you may cash out annuity payments that you are owed, contact us and we will answer all of your questions about the actual cash out.
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