If you have ever considered setting up a retirement account, then you have probably come across the term “annuity.” If you are over the age of 50, there is a good chance that a financial advisor or other commissioned sales rep has tried to sell you whole life insurance or an annuity. Do you really know how an annuity works or whether it is a safe bet for your retirement?
At Five Points Law Group, our estate planning attorneys not only help prepare wills and powers of attorney, but we can also advise you on how these plans may work in tandem with your financial plan. As attorneys, we are not on a commission. When you hire us, you are paying us to act as fiduciaries, meaning we are required to put your interests first and advise you on what is best for you, not what will be best for our bottom line.
Ultimately, an annuity is nothing more than a complicated trade agreement. You pay an investment company, and in return they agree to give you regular monthly payments that you can count on regardless of how the money performs in their investments. It removes the risk (to an extent) and gives the retiree a level of certainty. While this may sound like a good plan, when you do the math, many people decide that annuities are not really a good financial choice.
In theory, an annuity sounds safe. However, there are four big drawbacks you need to consider before taking all of your retirement funds and moving them to one of these accounts.
You generally do not get to leave your annuity to others, although some allow a spouse to continue receiving money. Therefore, most estate planning professionals who are really interested in your family’s long-term wealth will advise you to invest well and draw dividends or principal. That way your money continues to earn interest. Plus, if you die sooner than anticipated, that principal remains in your control for your children, spouse, or other loved ones. Call Five Points Law Group to get skilled advice with your estate plan.