We’ve all heard the expression ‘have your cake and eat it too’. It’s a pretty simple dilemma; if you have your cake and eat it… then it’s gone. If you don’t eat the cake, you still have it but don’t get to enjoy it. Wouldn’t it be nice to have it both ways? It’s like being rewarded without taking any risk or getting something nice without having to pay for it. So you’ve done some research about fixed indexed annuities and you find there are many things you like such as: No risk of losing your principal, sharing in a percentage of the market index if it goes up but not if it goes down, getting a bonus for investing, tax deferral on earnings, riders to protect you if you need long term care or want income you cannot outlive. Unfortunately, your research also taught you that all those benefits you love come with a price: Liquidity.
The insurance companies know they can only afford to offer these benefits if they eliminate the risk that you will pull your money out before they can earn a profit. This is done by imposing surrender charges which are deducted from your account if you pull the money out too soon or take too much yearly. Most annuity policies allow free withdrawals, typically 10% per year until the surrender period has passed. After that, you have full access to your money without penalty. One thing to keep in mind, if you take money out before you reach age 59 ½, Uncle Sam imposes a 10% penalty. Surrender periods can be as short as 5 years or some even lasting longer than 10 year. We all know a lot can change over 10 years, so the decision to commit to an investment that ties up your money for so long is one that shouldn’t be made without carefully considering the costs and benefits. When clients ask me if buying an annuity is a good investment, I always tell them it’s not always the right solution but when it fits there’s nothing better.
So when it comes to annuities, why can’t we have it both ways: Great benefits and access to our money without penalty? Well now you can… sort of! Recently, a handful of companies began offering annuities with ‘Return of Premium’ (ROP) riders. Basically, if you decide you don’t want to hold onto the annuity until the surrender period expires, you can get your money back – no questions asked. Like everything else in life this rider comes with a cost. You will get your principal back but not the earnings. Where I see this ROP rider being a good option is if you have money set aside that you want to access if life throws you a curve but you don’t plan on needing the money otherwise. If you would like more detailed information on annuities with ROP riders or to see if it’s a good fit for you, just click on the links below to send me an email or visit my website to get a free copy of the e-book, ‘Savior Retirement’.
To learn more from this annuity professional, click here (John P. Grimes).
P.S. – Please share this article with others by simply clicking on the blue social media icons at the top of your screen!
Annuity123 does not offer insurance, investment, or tax advice. You should always seek the guidance of qualified and licensed professionals concerning your personal insurance, investment, or tax matters. Annuity123 is simply a platform allowing retirement planning professionals to help educate the community on various retirement planning topics. Annuity123 does not directly support or take responsibility for ensuring the accuracy of the content displayed in the articles themselves or any feedback that may get added in the Comments section from the community.