Back to Basics: How do Annuities Work? How do They Work for You?

annuity

With advances in medicine and technology, it’s becoming more and more of a possibility that you may outlive your income. Household income had increased by 26% in the last decade, but so has the cost of living. If you’re worried about outliving what income and savings you do have, an annuity may be the right investment.

However, there’s a lot that goes into an annuity and you may not have all of the information you need right away. So whether you’re looking for a refresher or preparatory information, here’s what you need to know to make annuities work for you.

What is an Annuity?
Annuities are long-term investments issued by insurance providers to assist people who fear that they may outlive their current income stream. These long-term investments come in varied lengths and payout periods, but the most common are those paid over the course of 25 years or for life. Most people choose to invest a lump sum up front, and then manage a smaller payment into their monthly expenses.

How Can Annuities Help Me?
In the event of your passing, a structured settlement annuity could help your family in the future. Approximately 26% of Americans report not paying their bills on time, and the average household pays a total of $6,658 in interest annually. By investing your money in an annuity, or even allowing your family to sell your annuity, you could be relieving them of a potentially large debt burden.

What Type of Annuity is Best for Me?
There are multiple types of annuities, but the most common are variable and fixed. A variable allows you to place investments in different places and earn rewards based on their results. This is better for those who have a higher tolerance for risk. Fixed, on the other hand, requires you make fixed payments for the duration of the contract period.

Investing in annuities is a serious financial choice, and should not be taken lightly. Many people choose to sell their annuities if they don’t perform the proper research. Whether you’re buying or selling, be sure to have all of the proper information available to you.

Should You Sell Your Annuity? 3 Common Scenarios

sell your annuityBeing the recipient of an annuity or structured settlement payment is great in a lot of ways. You have the security of an additional stream of income, no matter how large or small your checks may be or how frequently they may arrive.

Yet it can also be frustrating. Sometimes it would be convenient to get cash for settlements or lottery winnings up front instead of having to wait until the next check arrives. As we all know, unexpected financial challenges can arise, and having access to that money would ease your stress.

Well, you’re in luck. There is a way you can sell your annuity, either partially or in full, and receive a larger sum of payment straightaway. Consider selling your annuity to a trusted financial institution in order to get the most out of your earnings.

  • You Need to Get Yourself Out of Debt.
    Debt is unfortunately all too common n this economic climate. Some one in five young Americans, age 18 to 24, describe themselves as being in “debt hardship,” which can cripple financial opportunities for a bright and secure future. If you sell your annuity for enough money to pay off student loans or credit card debt, you can buy yourself a pathway forward.
  • You’re Ready to Make a Lifetime Investment.
    Buying a house? The average cost in 2010 for a new home was $272,900, and mortgaging companies can require a down payment of up to 20% of the sales price. The more you put down now, the less you’ll be paying in interest and mortgage rates down the line. You could really save yourself a lot of money in the long run by selling a structured settlement for a hefty down payment.
  • You Have Ongoing Medical Bills.
    Unexpected healthcare needs — and even the expected ones — can be incredibly expensive without proper insurance. Especially if your medical needs are a result of an accident or injury that earned you your annuity payment in the first place, don’t hesitate to ask about selling that annuity in exchange for up-front funds. This way you can avoid mounting debt.

Don’t limit yourself to receiving small incremental checks when you could be receiving a lot more. Talk today with a specialist about how to sell your annuity and access the money that’s rightfully yours.

Pros and Cons: Structured Settlement Agreements

structured settlement agreementWhen it comes time to receive just compensation from your lawsuit, many people are presented with two options: a structured settlement agreement or a lump sum payment. With the first one, you receive your money in small increments over a long period of time. With the second, you get all of your money up front.

Every circumstance is unique, and your decision will ultimately depend on your situation and needs. Generally, there are a number of advantages and disadvantages to a structured settlement agreement that you should consider and discuss with your attorney and accountant before making the final call.

  • Pro: In the end, you usually get more money out of a structured settlement annuity than a lump sum payment.
    Because of taxes, interest, and dispensation periods that can take years to complete, you usually end up with more money from a structured settlement payment than you would if you were to opt for a cash-up-front compensation.
  • Con: That money takes longer to get to you.
    Of course, waiting for annuity payments means you might not have the money you need right away. This is especially important for people with medical bills to pay as a result of their case; overdue expenses can damage credit reports, as is already true of 20% of the population.
  • Pro: Annuity settlements provide future security.
    Some people can’t stand money that burns a hole in their pockets. Receiving all of your award up-front may tempt people to spend recklessly; some 25 to 30% of accident victims report using up all of their judgement funds within two months of recovery, while 90% are out of money within five years. A structured settlement agreement forces you to budget that money so that it can last for future medical expenses or financial security.
  • Con: You may not be getting the most out of that money.
    If you receive all of your money up front, you can create opportunities for investing your money. In the end, that may create a bigger pay-off than an annuity. People can use that money to get out of credit card debt, for example, which 70% of Americans say bears a greater stigma than any other kind of debt.

No matter what you decide, the good news is that it’s not necessarily written in stone. Even if you opt for a structured settlement payment plan, you can always sell your structured settlements to a financial institution — either partially or fully — to get a bulk sum of money to cover any emergency expenses.

Understand your options and make the best decision by consulting with your attorney.

Tired of Small Structured Settlement Payment Plans? There’s Another Way

structured settlement payment

Structured settlement payments are common in instances of personal injury or product liability, when companies agree to compensate claimants with a nice sum of money, usually in order to avoid a long and lengthy court process.

While you may have been promised a lot of money for your injuries or damages, chances are you haven’t actually seen much of it yet. That’s because structured settlement payments are almost always doled out in small increments over a long period of time instead of all at once.

In the end, this long, drawn-out process will help get you all the money you deserve while avoiding nasty tax issues. However, it’s simply not a feasible solution for everyone — perhaps especially personal injury victims who may have high medical bills to pay. Statistics from the insurance industry indicate that some 25 – 30% of all accident victims wind up using all of their case funds within two months of recovery, while 90% use up that money within just five years. Moreover, outstanding medical bills can be a serious financial burden — approximately 20% of all credit card reports are damaged by overdue healthcare expenses.

The good news is that there is a way to get cash for your structured settlement up front. You can sell your structured settlement to a financial institution to get settlement money now.

Selling a structured settlement simply requires some paperwork and a sign-off from a legal judge. You essentially forfeit all of those small, regular checks in exchange for one lump sum right off the bat. The trade-off is that your overall earnings will likely be less than if you waited the 20 or 30 years to see your annuity through — however, there’s no shortage of ways to invest your money now to see that it grows more through the years.

As of 2013, there were some 34.8 million deferred annuity or structured settlement payment plans across the country that, when combined, totaled more than $2.58 trillion. If part of that money is yours, you don’t necessarily have to wait years or decades to get your hands on it. Speak with an annuity seller today to learn more about your options.

Financial Management Advice for Surviving on a Budget

financial management

Financial experts and political pundits alike say that we’re slowly making our way out of the Great Recession, but many Americans today are still struggling financially to make ends meet.

The numbers can be deceiving: while overall household income has increased by 26% over the past dozen years, the actual cost of living has gone up by 29% during that same period of time. It can be difficult to plan — much less stick to — a budget when you’re already living on limited resources, but a sound financial management plan will help you make the most out of your money.

Here are just a few small pieces of advice to set you on the right track.

  • Reduce Debt
    Credit cards and loans are a very useful way to help cover costs and make investments when you don’t have the money for purchases up front, but in the long run, they can cost you more than they’re worth. Americans pay an average $950 every year just on interest payments. The best way to reduce your overall costs of spending may just be getting out of debt as quickly as you can.
  • Plan Your Meals
    Successful financial management comes through sweating the small stuff. When you plan out your grocery shopping to meet your meal plans for the week, you’ll be less likely to make impulse or unnecessary food purchases, both at the supermarket or at restaurants. Those small daily savings can really make a difference over time.
  • Think Green
    There is a strong movement across the country towards making eco-friendly decisions about how we use energy and fuel. But the decision to make small choices to reduce energy use can also save you bundles of money. You can shave tens of dollars off of monthly expenses simply by switching to high-efficiency lightbulbs, or keeping the thermostat set just a few degrees higher in the summer or cooler in the winter. You might even consider ditching the car to bike to work!

No matter you current situation, there are ways to take control of and manage your finances now before it’s too late. Some 40% of American families routinely spend more than they earn — don’t get to the point where debt rules your life. Simple financial management now can give you long-term peace of mind.