I am getting ready to retire. Should I invest a lump sum of money into an annuity? If so, which type would benefit me the most?


#1

I am thinking about investing $50,000.


#2

Buyer beware. Annuities are not suited for every retiree. Typically, but not always, someone concerned about outliving their money would be a good candidate for an annuity. They carry significant fees and restrictions. I would want to do an assessment before I recommended a particular type.
If you are looking at one as an investment vehicle, I believe you could do much better without an annuity.
I would be happy to further assist.
Susan L. Easthope, CFP


#3

Annuities are good for people that have a hard time controlling their spending, or have a history of longevity in their family. With an annuity, you have a reliable income stream. I rarely recommend them to my clients, however.
Most clients who are looking at an annuity already have their retirement funds in a tax sheltered account. For me, it makes more sense to keep it there. This allows the client to grow their money in the market at what is most often a higher rate. Client’s also have complete access to their money in case of an emergency, unlike the annuity. Finally, I am not a fan of the extremely high cost of most annuity products.
Make sure to reach out to several advisors before making a decisions like this. If your circumstances warrant it, you may be guided towards an annuity. Most of the time, it’s better to avoid locking money into one.


#4

Maybe–you can only find the correct answer to that question by doing a thorough analysis of what your options are and what retirement assets you have to work with.
Your money has a job to do. After completing a thorough retirement income plan review you can then determine what you need it to do, and when.
The right kind of annuity can be a powerful addition to your overall plan. The key is making sure that you are making the most efficient use of your retirement dollars and getting the best bang for your buck.
For example, I recently ran the numbers for a client who was getting ready to retire and they wanted to cash out their annuity because they thought it was bad. Other advisors had even recommended that they do so—mostly so that they could gain access to managing the money themselves. A detailed analysis revealed that the $450k that this client originally put into the annuity back in 2006 could start paying them approximately $85k a year, every year, for the next 20 years, guaranteed.
We ran the math on this and the annuity that they had purchased for $450k would now pay out a little over $1.7 million dollars over the next 20 years–a guaranteed internal rate of return of 18.36%, with zero market risk.
In this particular case, the client was very happy that they had purchased the annuity, and that they got a detailed review of what options they had with it.
Same goes for you—an annuity is simply a financial planning tool. When used correctly, it can be very powerful. When used incorrectly, it can cause problems. Just like you wouldn’t dig a hole with a hammer, don’t use the wrong type of annuity to fix the financial problem that you may have.
Hope this helps!


#5

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