Many retirees purchase annuities because they want to ensure a stream of income that lasts for a period of years, or even the rest of their lives. But what happens if you need to quickly access a large amount of cash at some point during your retirement? The future is never certain, and you could incur large health care expenses, need an expensive home repair, or experience some other financial emergency. The fear of being unable to access your money could prevent you from purchasing an annuity contract at all. But you should learn the facts about annuity contracts before leaping to any conclusions.
One thing you should keep in mind, is that there are many different types of annuities. Your annuity might not look anything like your neighbor’s annuity, or your brother’s annuity! We can structure them a variety of different ways according to your needs and anticipation for the future.
Having said that, many annuities do offer the option to withdraw up to 10 percent of your invested cash, without risking a penalty. If you’re worried that you might need to withdraw some cash in the future, you should choose an annuity that offers this option.
Additionally, some annuity contracts will allow you to withdraw cash beyond that 10 percent annual limit. You will likely have to pay a surrender charge in this circumstance, but it is something to keep in mind if you’re worried about accessing your funds. Different annuities charge varying surrender charges, so investigate this fee carefully if you anticipate withdrawing cash in the future.
Most annuity contracts charge decreasing fees, meaning that the surrender charges will decrease each year as you hold the contract. Depending upon your particular annuity, surrender charges might apply for only the first three years of the contract, or as long as fifteen years. The takeaway lesson here is that you should think twice about choosing an annuity – or sinking all of your cash into one – if you think you will need that money at some point in the very near future.
Another option, of course, is to purchase an annuity but reserve some funds in a separate savings account. This way, you can enjoy the long-term benefits of earning income from an annuity, while providing yourself a hedge against emergencies.
Call our office to schedule an appointment, and we can discuss our annuity options and strategies with you.