12 Aug The Basic Pros and Cons You Need To Know About Annuities
Many people understand that an annuity can be part of a structured settlement agreement, part of lottery payments, or purchased from an independent company as a way to provide financial resources during retirement. But many people — including those who receive annuity payments and wish to sell these payments — never really understand exactly what happens with a structured settlement annuity (or with lottery annuity payments or even structured settlements, for that matter).
So what exactly are the pros and cons of annuities?
- Many people chose to purchase annuities after the economy began falling apart in 2008 and they lost their pensions; annuities are often seen as reasonable retirement options because they provide payments over a longer period of time, similar to how you’d receive a paycheck.
- Another factor here is that you get to choose how you receive your payments — typically over a period of 10 years, 25 years, or until both you and your spouse are deceased.
- Tax benefits are a major reason why people choose annuity payments over a lump sum for their lottery winnings. When you choose an annuity, the taxes aren’t as high and you’ll get to keep more of your money.
- If you choose an immediate annuity, you might be able to begin receiving payments as soon as 30 days after making your initial investment.
With that being said, there are still quite a few negative points about annuities that you might already be familiar with if you’re interested in selling your annuity.
- Even though you won’t pay as much in taxes with an annuity, you’ll still have to pay maintenance fees which typically cost around $20 to $30 per year.
- If you’ve won the lottery and chosen an annuity plan, the federal government is still going to withhold about 25% of your winnings no matter which payment option you choose.
- Immediate annuities aren’t the most common types of annuities, and if you’re interested in selling your annuity, you probably have a plan that requires you to wait a certain number of years before withdrawing any payments, or you have to wait until you’re 59.5 years old.
- The Mega Million lottery annuity is one plan that factors inflation into payments, and it increases payments by 5% over a period of 29 years. Nevertheless, many people still note that this adjusted inflation rate isn’t enough.
- If you have to withdraw your money early from your annuity — for whatever reason — you could be hit with early withdrawal fees as high as 10%.
Ultimately, the majority of people who sell their structured settlements are satisfied with their decision — and if you’re seriously thinking about selling your annuity, there’s a good chance that you’ll be satisfied with it too!