There have been worries about selling annuity payments. Many have wondered whether this is right or not. This post is for anyone with such concerns…
WHAT IS AN ANNUITY PAYMENT?
A contract set up by a financial institution or an insurance company selling a product which consists of payment of a fixed amount of money. Funds which can serve as form of investment, are accepted which accumulates and grows. The time when an annuity is growing before it gets paid out is called the accumulation period but once it starts getting paid out, it is called the annuitization stage.
The general idea behind the concept of annuity is to have a steady source of income upon retirement or if one outlives one’s assets or income, this can be annuitized. A lump sum of money could be stretched out with annuity payments.
There are different types of annuity plans that could work according to what best suits a client’s needs.
- Variable annuities – With a variable annuity, the individual is free to choose investments and make earnings depending on how the investments play out. These investments have various degrees of risks, but at the same time, they equally have the possibility to yield good returns. All of this will depend on how much risk the individual can take or what the individual is looking to achieve. If this investment goes as expected, the client will receive greater cash flow but otherwise, will receive smaller cash flow.
- Fixed annuities– If one has a lump sum of money that can be tied up, this plan would be most suitable. The investment and the value of what will be earned on it is guaranteed. A plan of payment can be worked out on how the annuity will be paid. This is also a smart choice for those who suspect that they might outlive their assets.
- Immediate annuities – This can also be purchased with a lump sum but the payment starts immediately or just a short time after the investment is made. The stream of income is guaranteed however, it might be irreversible once the payments start.
WHY SELL AN ANNUITY?
- Security – Unforeseen events happen, over which people have no control. Life happens and if it turns out that the annuity payment can no longer meet the needs, this decision might be necessary. Some examples such as mortgage payment, payment of high interest debts, tuition and other important needs.
- Divorce – If a plan was made jointly by spouses, after a divorce, selling off the annuity would be a logical thing to do. That way, both parties can split the funds immediately.
- Inheritance – If someone inherits an annuity and would prefer to spend the funds another way, instead of receiving the money in a spaced out period against their will, the person would be free to sell it off.
- Or the person realizes that the reason why the annuity plan was taken in the first place no longer applies.
One good thing about selling annuity payments for cash is that the individual has the cash at hand. However, most companies advise people who might be getting housing benefit or pension credit to be cautious as it not certain whether such people would have an increased benefit even if their income may have dropped due to the annuity sale. Also, the money received from selling an annuity remains taxable the same way income from any source is taxable.
HOW TO SELL ANNUITIES – OPTIONS
There are two alternatives for selling annuities: partially and entirely.
Selling partially – Selling just a part of one’s annuity leaves the person eligible to continue receiving payment at intervals according to what might have been agreed on. A person could also space out the partial selling by selling in lump sums over time. This payment keeps tax benefits as agreed on and should the receiver pass away before receiving all payments, the tax benefits will be extended to heirs.
Selling entirely – With this, all investments will be ended and this puts an end to any payments in the future. The lump sum will be received for the person to do with as he or she sees fit.
Selling annuity payments for cash could be an end to a means, it is all a matter of preference. Should the need arise, there is no need to beat oneself over it especially if there is a plan in place not to spend the cash unwisely. This money could be to start a new business, pay off student loans or high interest debts. One does not have to put life on hold by deferring payments that can already be made from selling off an annuity. There are numerous financial institutions and insurance companies that will willingly help in this area.