Agent Owner, Gilmore Insurance Services, Marysville, Washington State
How much should you invest in annuities? The answer is an individual one based on your concerns about RISK and RETURN. There isn't a formula or set amount that people should follow. Annuities and equities and other places to park money should be divided up based on your risk profile as different investment choices carry different levels of risk.
Risk simply means at what point do you stop putting money in places where the return can be zero or your money could be lost? Everybody is different, annuities for the most part tend to be low risk products. Should you have money there? I think so, I would, but my understanding of risk and how it effects things may be different than yours.
Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
A great deal of attention is focused on rates of return but this question focuses on the real issue. If money isn’t transferred to an annuity or other retirement asset, it won’t be there when a person retires. The amount that should be placed in an annuity as opposed to other investments is up to the individual and the retirement income professional and should be tailored to provide a desired income stream when the person retires.
Life & Health Insurance Agent, The Tooker Agency, Riverhead NY
One key factor when determining how much to invest in an annuity is liquidity. Most annuities come with a contingent deferred sales charge (CDSC). Usually you can withdraw 10% of your account value per year before triggering the CDSC. However if you wind up having to withdraw more than that amount in the first 5 to 8 years of the contract you could pay a hefty fee.
Additionally any deferred earnings taken out prior to age 59 1/2 will come with a 10% income tax penalty.
For these reasons you should have an adequate emergency savings fund before investing in an annuity. You should also limit your annuity investment to funds that you will not need until you are over the age of 59 1/2.
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Risk simply means at what point do you stop putting money in places where the return can be zero or your money could be lost? Everybody is different, annuities for the most part tend to be low risk products. Should you have money there? I think so, I would, but my understanding of risk and how it effects things may be different than yours.
Additionally any deferred earnings taken out prior to age 59 1/2 will come with a 10% income tax penalty.
For these reasons you should have an adequate emergency savings fund before investing in an annuity. You should also limit your annuity investment to funds that you will not need until you are over the age of 59 1/2.