Long Term Care Planning
In October, we’re bringing awareness to long-term care planning. Annunities may help with your NJ elder care planning.
“Are you planning for your retirement?” the TV ads ask. If your answer is, “Umm, not really,” you have plenty of company. Financial advisers across the Web scold Americans for not saving enough for retirement. While this is a real problem, many Americans are struggling just to keep up with the current costs of living. There are quite a few reasons:
- Losses in savings and retirement accounts caused by record low interest rates and the collapse of several investment firms in 2008
- Interruptions in income and savings caused by lay-offs
- Stagnant incomes for those who managed to remain employed
- Uneven relief, if any, in the costs for food, energy and other basics of life
In fact, more Americans than ever plan to work past their retirement age to make up for lost income and savings they experienced during The Great Recession, The Wall Street Journal reports. Thankfully, annuities provide some relief.
One option for families thinking about retirement saving strategies is to consider annuities, which are long-term investment strategies that provide an income stream for retirees and people older than 59-and-a-half. Annuities are actually insured by the firms that sell them to protect investors from losing income. Some may even guarantee a fixed rate of return. It’s like having a warranty on your investment.
Annuities can be designed to fit different needs. They can be arranged to pay out funds to owners or their heirs for as long as they live or for a specific period of time. The latter reason makes them a common strategy used to pay out court settlements. Private placement variable deferred annuities (PPVAs) are even more attractive, particularly to lawyers working on court settlement details, because of their flexibility, transparency and ability to accept other investment forms, such as hedge funds and commodities. PPVAs can only be sold by brokers licensed by the Financial Industry Regulatory Authority.
There is a healthy market for individuals who want to sell their annuities for any number of reasons, including to pay bills during a period of unemployment, save a residence from foreclosure or pay for college tuition. However, according to annuity.org, annuity owners who plan to sell should carefully consider other options to raise money. The main concern is most annuities out there today are part of retirement packages. Retirement annuities sold before age 59-and-a-half come with a 10 percent tax penalty from the IRS. There are very few exceptions to this rule.
Selling an annuity can bring unexpected costs, including a 7 percent fee if you opened it within the past year, in addition to age-related penalties. These “surrender charges” decrease with each year, usually by about one or two percent until they drop down to zero. Some annuities also let you take out earned interest without charge or allow a withdrawal up to 10 percent of the fund without the surrender fee.
Guest author: Tom Weaver | Tom is a financial planner from St. Paul.