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article imageOp-Ed: Pensions — Take the money or run?

By Roger Byrne     Apr 25, 2014 in Business
Deciding whether an annuity is the right investment has been debated for as long as they've been around, and understanding a few principles can make a vast difference.
If retirement is around the corner and you have the good fortune of deciding whether you should settle for an annuity or lump sum, the options may not be obvious as they seem.
Annuities are often over complicated financial products that can sound good for retirees, but this isn't always the case. From one product to the next, they can come with a lot of contractual obligations, moving parts, and even hidden fees.
For many, the idea of a lump sum is the more attractive option. You can take that trip you always wanted to, pay down debt, make other investments, whatever you like. Others prefer the scheduled payments of an annuity to achieve their financial and retirement goals. Key considerations can include age, health, risk tolerance, other income, tax bracket, and more.
Annuities are sold by insurance agents and pitched on how they can possibly grow in conjunction with the markets. The reality is, and this is especially true with variable and indexed, is the annuity offers what the policy guarantees. What's key to annuity pricing is they're tied to the 10-year Treasury rate, and while common customer sentiment is rates will rise, its wishful thinking and uncertain that they will.
Don't get me wrong, there are many instances where buying an annuity or structured settlement can be a wise investment. But its critical to understand the product inside out. These are contractual math products where it's all outlined in the policy.
This article can't cover all the bases, but point you in the right direction to at least consider the many pros and cons. If thinking to purchase an annuity, at least be sure to read the terms. A staggering amount of (smart) people that own annuities simply don't understand the product well enough. Small details can jeopardize your investment, so it's wise to consider laddering strategies.
Some have found solace in a secondary market, where they can find buyers for their annuities or structured settlement payments when things don't work out as planned or have unexpected expenses.
It can be tempting to move everything into what might be construed as a safe investment. If knowledge is the key to maximizing your return, it doesn't become any more true than when you tie your money up with an annuity. Only put your faith in what the policy is promising, and not the hypothetical best case scenarios an agent might offer you.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
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