Common Annuity Mistakes and How to Avoid Them
Picking the Wrong Payout
The biggest issue one can make when getting an annuity is picking the wrong type of payout. The wrong payout could mean additional fees and taxes. The biggest type of payout problem is when one person picks an annuity that pays out for life, but does not extend coverage. For example, if ones life gets tragically cut short the payout stops. That is why picking a payout that pays to a spouse or even a child when the annuity holder passes away is a smart option. If you choose this payout option, you may have a lower monthly payout but you can be sure your family is secure.
Switching to Another Annuity
If you have an annuity that isn’t paying out to your satisfaction, you might want to shop around for another annuity. If you have an older annuity, your payout might be higher. For many years, you were allowed to take out six percent of your annuity annually. In the past decade, that cap was lowered to five percent. Switching to a newer annuity could mean less payouts for you. There is also the issue that other brokers might want to take advantage of you and get a percentage of your annuity. Never switch without talking to someone who is on your site.
Ignoring Fees
If you are granted an annuity, there is probably some excitement within you. An annuity means you are getting a payout from a settlement and that you can finally pay off bills or legal fees related to the legal battle you went through. Many people get their annuity and immediately begin budgeting their funds. This is done to plan out bills and pay off debts. However, if you overlook the fees you might get into another financial hole. Paying attention to fees before budgeting can avoid several mistakes related to ignoring your fees. It’s also important to check if there are any hidden fees.
Overlooking Inflation
If you have an annuity, overlooking inflation could be a costly mistake. Inflation increases on average at two percent a year. Some years it will be less, but its possible that some will also be more. Over time, this inflation could mean that the lifetime value of your annuity gets lowered. If you are budgeting the funds from your annuity, overlooking inflation could cause issues down the line. This is why paying attention to inflation rates and checking with your broker can help you make plans for your money without overlooking inflation. After all, inflation is something that you cannot avoid.
Not Looking At Other Annuities
After being awarded an annuity you might just stick with the original one offered. However, the original annuity awarded rarely has the maximum benefits. Instead of looking at other annuities alone and avoiding more mistakes, contact a broker who is familiar with you and your situation. Take a look at other annuities, ideally before commiting to one. If you already committed, check to see if you can switch to another while still gaining benefits and not lose any of the settlement. There are options other than the annuity that was originally offered and looking at these options is always a smart move.