22 Sep 3 Factors of an Annuity You Might Not Realize
A structured settlement or annuity can be awarded from an insurance claim, lawsuit outcome, or even for lottery payments. They are a nice source of passive income, but can also be sold for cash to be used at your disposal immediately. Many people are unaware of what an annuity entails though. Selling an annuity settlement has a lot of benefits as you can use the money to pay off debt, or invest in something with more potential. Before you decide whether or not you want to sell one, first you should understand some of the basics.
- More Prevalent Than You Think: Annuities in general are more prevalent than you probably think. In fact, there were 34.8 million individual deferred annuity contracts in place in excess of $2.58 trillion at the end of 2013. Over 37,000 people use money from a structured settlement every year in the United States. Many times they come about after a court case or time-consuming regulatory process so we don’t necessarily hear about them every day, but they are quite common and should be on everyone’s radar.
- Hidden Fees: A lot of people think that by having an annuity, they are escaping the clutches of taxes and fees by receiving a regular check each year. Wrong. First of all, many annuities have rules in place that prevent withdrawals in the first five to seven years. Generally, they will charge you up to 7% of your initial investment if you have to dip into these funds early for whatever reason. On top of that, regular maintenance and upkeep of an average variable annuity is 2-3% annually. Finally, often times there are age requirements. If you decide to take money out before the designated age (usually 59.5 years of age) you’ll be slapped with penalty charges.
- Should Only be Portion of Investments: Selling a structured settlement can provide more potential in managing your money. Keep in mind that if you do decide to keep some annuities in your portfolio, experts recommend that they should only account for at most 25-30% of your overall investments.