The Biggest Annuity Investment Mistakes

Mistakes Often Vary by Age

Annuities, like other investments have pros and cons. If some people have a bad experience with them, something might have gone wrong during the process maybe due to bad selection or even bad decision making. Picking the right annuity for your situation is half the battle, and picking one that doesn’t fit your appropriate scenario comes with cons, just as with any investment.

Sometimes, mistakes may vary by age. Take for example a young investor who invested in an annuity too early in life. If they need the money soon, or if the money isn’t earmarked for retirement, this could pose a liquidity risk. In addition to possible surrender charges, that investor will be forced to pay IRS tax penalties in excess of ordinary income tax should that money need to be withdrawn.  Older investors are subject to the same risk.  Picking the wrong annuity for someone who is concerned with different liquidity and risk factors can pose a problem.  For example, a retired widow who is concerned with preserving principal may not want to invest in a variable annuity due to the issue that the funds could be lost

Common Mistakes

The common mistake many people make is neglecting to read the contract carefully and completely.  A good financial advisor can help you understand the annuity contract in its entirety.  Other things can be overlooked are fees, surrender charges, and liquidity provisions.

The Biggest Mistake of All…

The biggest mistake of all may be “not” purchasing the “right” annuity.  If an investor has a need that an annuity can adequately satisfy, it would not be beneficial to have funds invested in another financial vehicle.  Everybody has their own situation and different risk factors apply in different situations.  Picking the right vehicle, whether it be an annuity or not, is a vital part of retirement planning.

Get An Advisor

People do make mistakes, but having a good financial advisor can help to avoid and minimize these mistakes.  In everything we do, acting without properly studying or analyzing a situation will lead to disaster. It is important to rely on a professional to help you determine where you are today, and where you want to be in the future.  Investing has its tradeoffs, but when issues are properly addressed, problems can be minimized.

Annuities are best suited for long term investors.  Any withdrawal prior to age 59 ½ is subject to a 10% tax penalty as well as regular income tax.  Annuities often also have a surrender schedule, meaning that withdrawals may be subject to a penalty by the insurance company if not left in for a predetermined amount of time.  Any guarantees on principal invested is based upon the claims paying ability of the underlying insurance company.