21 Jul Millennials Prove That Annuities Aren’t Just for Retirees Anymore
Many people view annuities — a form of long-term investment that allows an individual to exchange a lump sum of cash for structured annual payments — as a favored financial tool among the Baby Boomer generation.
However, that’s beginning to change. These days, more money-smart Millennials than ever are seeing annuities as a wise investment choice.
According to a June 29 USA Today article, young adults born between the early 1980s and the early 2000s are now more interested in the investing strategy that drives annuities than any other age group. This is despite the fact that the majority of millennials have most likely never heard the word “annuity before,” a new report from the Indexed Annuity Leadership Council revealed.
In fact, 52% of millennials today reported being somewhat or very interested in the concept of an annuity, the study found. This isn’t too much of a surprise, given the fear of the stock market that the Great Recession put into many young people’s minds.
However, it’s important for millennials to understand the potential drawbacks to investing in a structured settlement annuity. If one ever needs to withdraw money early from his or her annuity fund before age 59 1/2, the individual could face 10% early-withdrawal penalty fees. Annuities are also subject to income tax; with the maximum income tax rate set at 35%, it’s possible that a large chunk of an annuity could go toward paying this tax.
Because of this, it’s vital for millennials to understand that an annuity is a long-term investment. Most annuities take 15 to 20 years to reach a rate of return that’s higher than other types of low-risk investments.
But once millennials are taught the ins and outs of annuity settlements and payments, they can begin to take advantage of one of the easiest ways to keep one’s personal finances healthy over the long run.
What are your thoughts on this trend? Have any other questions for us about selling fixed annuities or getting structured settlement annuity benefits for yourself? Let us know by leaving a comment below.