08 Sep 3 Ways You’re Losing Money by Not Selling Your Annuity
Most people view annuity settlements as safe, valuable, and fiscally responsible. They can be just that and for many people they’re a fine option. An elderly person living on a fixed-income could benefit from this, for example. But, if you’re looking to actually make money and maximize your earning potential, selling your annuity is the way to go. There are countless investment opportunities available to you when you get cash for your settlement that aren’t possible with the slow trickle you’ll receive from annuity settlements. Here are three reasons you’re really losing money by not selling your annuity that your settlement provider probably won’t tell you about.
1.) Taxes/Fees: Every annuity is obviously different, but one of the fallacies that gets perpetuated is that they’re all tax-exempt. This is simply not true. In most cases taxes are required to be paid if withdrawals are made before the age of 59.5. The hidden fees associated with annuities also get overlooked. Many have annual fees of 3%, while others will slap you with penalties for early-withdrawal. This can be as much as 10%!
2.) Inflation: Many people forget the phantom tax that attacks conservative saving the harshest. Essentially, every year the money you save is devalued if it remains stagnant. Generally you have a set value for your annuity payments. In reality, this means that the “set” value actually decreases every year. If you’re receiving $10,000 a year in annuity and inflation is at 3% (typical for today), next year you’re really only receiving $9,700 in comparison to the agreed upon value. It only gets worse the more you draw it out. Take control of your money and invest it yourself. Cashing out an annuity doesn’t mean you have to blow it all within five years like 70% of all lottery winners. There are infinite ways to diversify a portfolio to ensure you still have long term security, while increasing your overall profit margins.
3.) Betting Against Yourself: When you choose to buy structured settlements, you’re in essence betting against yourself. The insurance or annuity company is taking the large sum of money and investing it in a variety of ways. They pay you the annual agreed upon price (which as previously stated is technically decreasing to begin with) and any excess interest they accumulate they get to keep. Even if you don’t have experience investing, you can hire a financial adviser to assist you and keep the fruits of your money’s labor for yourself. Oh, and they’re also hoping/betting on the fact that you’ll die before they have to pay you more than what the annuity is worth.
If you’re at a point in your life where you don’t need a lot of extra money and playing it safe is more beneficial, then annuity payments might be your best option. There may be a little more risk in selling your annuity, but the rewards can be great.