Money Matters: Annuities, the good and bad

Published: Dec. 2, 2020 at 7:04 AM EST
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COLUMBIA, S.C. (WIS) - Financial security is on the minds of many amid the pandemic. This week’s Money Matters offers one option available to make the most of your savings, and what to look out for in the fine print.

One of the most common solutions when looking for financial protection is an annuity, but there is a lot of confusion surrounding this. Josh Bradley of Capital City Financial Partners is helping to break down some of the basic benefits of annuities.

One benefit is tax deferral because you can earn interest without paying taxes, similar to an IRA. Bradley says you will eventually have to pay taxes but just at the time of your choosing.

For those thinking this sounds too good to be true, Bradley says keep an eye on the length of lockup.

“A lot of these annuities have what’s called a surrender schedule where they capture your principal for a set term. Now, you can usually tap into your interest income, but that principal is locked up for maybe two, sometimes even 12 years. So, you never want to put money in an annuity that you’re going to need to touch before that surrender schedule,” said Bradley

You may have heard of several different types of annuities. Bradley explains there are: variable annuities which are more tied to the stock market, fixed-rate annuities, which are more like traditional bonds where it pays you a set interest rate for a set term, and then there’s index annuities which pay interest based off of the market.

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