If you're planning on retiring soon in order to make sure you have an income after you leave your job behind, an annuity is often an excellent way to achieve this. New retirees who are also new to annuities tend to make the same types of errors when it comes to setting up their annuity for the first time. Here are a few mistakes new retirees tend to make with annuities and ways that you can avoid the same errors in order to really maximize your results.
Failing to Consider Spouses
One big issue to look at when you're looking to buy an annuity is whether you have a spouse or not. If you have a spouse who will depend on the annuity, then you'll want to focus on a lower payout in order to extend it for a set number of years instead of just being in effect while you're alive.
If you don't have a spouse or anyone else who will depend on you, however, then going for the highest payout is the better way to go so that you get as much money as possible while you're alive.
Overinvesting
One common error is putting too much money down right away. Because an annuity is so dependable, it also requires you to be sure about how much you're putting into it. People who put hundreds of thousands of dollars into it, more than they can afford to invest while on a tight budget, are stuck. It's important to invest the right amount by taking the expenses that you need for certain, taking out any sources of income you know you can depend on in the future, and then only invest as much as you're going to need to make the two fit together.
Overdrawing
Just like investing too much in the beginning, you always want to make sure that you don't withdraw past the amount allowed yearly. This is usually around 5%, but it can vary based on the account. If you withdraw past that amount, you will often end up with penalties.
Missing the Fine Print for Guarantees
It's important to check guarantees carefully. If you get an immediate annuity, then you can get payout guarantees. That way you can invest in other types of accounts such as those that are similar to mutual funds. You may miss this possibility if you don't read the potential funds carefully, however.
Share13 September 2016
My name is Alison, and I recently found out that I should have been saving for retirement since I first began working. I have now discovered what it takes to have a successful retirement plan, and I felt secure in my ability to care for myself once I am done working. I may even be able to retire early! I'd like to help you get your retirement plans in order and make the most out of the time you will have when you are no longer working. Let me help you understand what you need in a retirement plan and how you can get started.