One of the factors that lead to insecurity about long term care is a bigger problem – financial security, regardless of your long term care needs. Many people worry from day to day about their money lasting, and as such, are hesitant to add another expense in the form of an LTC premium. If that’s your situation, then you owe it to yourself to learn more about one of retirement’s best kept secrets – fixed, deferred annuities, a safe place for your money to sit and grow.
The stock market is still a scary proposition for many, so people are falling back on CDs, money markets, and savings accounts as a place to keep the money they’re counting on for retirement. But with current rates, those aren’t going to let your money grow in any significant manner. There’s another option, one that many people either don’t know about, or don’t trust because they don’t understand how they work. These are fixed, deferred annuities.
I’m not talking about variable annuities. Variable annuities are investments. They expose you to risk, and many of us don’t want risk at this point in our lives. But the variable annuity’s conservative cousin, the fixed annuity, is an altogether different beast.
A fixed annuity is not an investment; it’s an insurance contract. At its core, an annuity is a very simple concept. You let the insurance company use your money for a specified number of years. In return, the insurance company guarantees you a specific return on your money. That’s a deferred annuity.
In a recent poll, more than one-third of consumers didn’t know what annuities were, and nearly as many didn’t have any opinion about them. This simply means that people aren’t informed about how they work and what they offer.
Annuities offer you some very nice features. The first is a guaranteed return. For instance, today, one leading product offers a guaranteed 3.25% for a 6 year contract. So, you put your money in the annuity, and you’ll make 3.25% each year, for 6 years, guaranteed. While your money grows inside the annuity, you don’t pay any taxes on it. This means your money grows faster, because you’re not being taxed on the growth. Most annuities will let you access some of your cash if you need to get to it, but if you cash the entire annuity in early, you will pay a penalty known as a “surrender charge.” Remember the basic concept – you agree to leave your money with the insurance company for a set amount of time, and in return, they promise you a guaranteed return. If you break the deal, you pay a penalty.
There are some things you need to look for in an annuity. Is the company financially sound and reputable? Look for “A” or better ratings with the major ratings agencies. Look for companies with assets in the billions, not millions. Make sure you understand the surrender schedule (how long you have to keep the money in the annuity) and if you can access part of the cash without a penalty. (Many contracts will let you get as much as 10% of the annuity out per year with no penalty.) Never put all of your cash into an annuity, and never put money in an annuity unless you’re confident you won’t have to take it back out the first time the car breaks down. And finally, don’t let anyone pressure you into buying something you don’t understand. This is true not just for annuities, but for anything you buy!
Deferred annuities are an excellent tool, if used for the right reason. Do your homework, and perhaps you can gain a little peace of mind with your retirement savings, and then perhaps you’ll be ready to plan for long term care. Thanks!