Things You Should Know Before Investing In Annuity Payments


Things You Should Know Before Investing In Annuity Payments

If you are considering selling some of your annuity or other investment funds, you should know that selling them is not as simple as it sounds. An annuity is typically a complex financial entity, and the rules that govern its sale are different from those governing selling other types of financial investments. Because of this, most insurance companies will not sell annuities. However, there are companies out there that will buy annuities if you qualify for them.

How do annuity buyers make their business work? Basically, they take the payments you are entitled to and give you a lump sum amount in exchange. The difference between what you are paying now for your annuity and the lump sum is what they take out. Obviously, since annuities are usually considered highly secure, the sale price is quite a bit higher than the actual value of your annuity. This is why most insurance companies will not sell annuities to retail customers they simply don’t make enough money on them!

What kind of discounts can you get on annuities? While the exact percentages of discounts offered depend on the individual situation of the buyer, most companies will accept a percentage of your annuity. Some companies will even give you cash for your annuity, but will not accept payments from you until you reach a particular age. On the other hand, some companies will pay you interest while you build cash flows with your annuity. This option can be very helpful for retirees who are just starting to need some additional income to supplement their pension payments.

What are discount rates? Discount rates are how much you would pay if you were to buy an annuity today for the same amount you would pay if you invested it today in a money market or certificate of deposit (MOC) account. Using a discount rate is a great way to calculate your current annuity value. If you are starting to need extra income to supplement your pension payments, calculating your present value with a discount rate can be very helpful. Using this method is especially useful if you are already retired and are getting close to the tax-free retirement age.

How are time intervals calculated? Time intervals are the amount of time it takes to pay your annuity. Some annuities have fixed payments; others may have flexible payments that can change over time. Usually the fixed payments have longer time periods, but if you are near retirement you might want to consider an annuity with flexible payments that have longer time periods.

Will sell my annuity affect my tax liability? Depending on your current tax situation, the answer to this question will depend. Your future annuity payments could be taxable as ordinary income; they could be included in your federal income tax when you take them out; or they could be exempt, which will mean that they will not be taxable. In choosing your annuity provider, be sure to ask whether the payments you receive will affect your taxable income. Many people choose to cash in their payments for a lump sum payment so that they will receive the full present value of their annuity.