So, you’ve done your research, you’ve weighed the risks and benefits, and you’re ready to buy an income annuity. No doubt you’ve thought long and well about the decision. But an income annuity is a lifelong purchase, so you should consider all the factors before you make a serious commitment. Here are some questions you should answer for yourself during your decision-making process.
After you purchase, will you have enough money on-hand for emergencies?
The money used to purchase a fixed income annuity will be permanently locked into a contract, and your access to funds will be limited to the monthly income payments you will receive for life. Therefore, many insurance companies have guidelines in place for determining what percentage of your assets may be used to purchase an annuity. Be sure you understand those guidelines before making a purchase.
Do you have enough cash to purchase without borrowing money?
The benefits of an income annuity may not exceed the interest you would be charged on a loan. Therefore, you should never borrow money to purchase an annuity.
Are there potential disadvantages to moving your assets into an annuity?
Review your current investments to see if they offer advantages not available with this annuity. Additionally, consider any surrender charges, penalties or fees you may incur on the money you withdraw from another account to purchase an annuity.
Will purchasing an annuity affect your Medicaid eligibility?
Purchasing an annuity has the potential to affect your Medicaid eligibility, since an annuity may be considered a countable asset if you apply for Medicaid assistance for a nursing home or other long-term care services. You should consult an attorney to understand how Medicaid may treat an annuity for the purpose of Medicaid eligibility.
Have you taken into account the federal and state taxes that will be deducted from your annuity payments?
Like all forms of income, annuity income payments are subject to federal and (if applicable) state taxes. If you require specific information regarding your individual situation, please speak with your tax advisor.
Your retirement is something you’ve worked your whole life to earn, and while an income annuity can help you enjoy it to the fullest, purchasing one can be a complex decision. If you’ve thought through all of the questions above, then you’re likely in a good place to make the right choice for yourself.
Learn more about annuities in the New York Life Learning Center, or call 1-800-313-6841 to have your questions answered by a knowledgeable representative.