Speaking at Foxdale Village Retirement Community in State College, Penn., Insurance Commissioner Teresa Miller urged consumers, particularly seniors, to take time to understand annuities in order to protect their retirement income.
“Annuities are designed as long term investments to provide income over a period of years, and people often buy annuities to help manage their income in retirement,” she said. “Annuities should not be purchased to reach short term financial goals.”
Miller encouraged consumers to understand that when they purchase an annuity, their money is locked up for a specific period of time, typically five to ten years. If consumers want to withdraw their money during this time, they will pay a penalty called a surrender charge. Those charges usually lessen the longer the money is in the annuity until the product’s full term is reached.
“Make sure you ask about the surrender charges, and before buying an annuity, decide whether you can afford to keep the money in the annuity for the entire surrender charge period,” Miller said.
While annuities are designed as long term investments, there are also immediate annuities with payments beginning immediately on purchase for someone who needs immediate income. Withdrawal above a certain amount of the investment may still be subject to surrender charges. Deferred annuities have payments beginning at a future date, often at retirement.
Because annuities are often used to provide retirement income and marketed to seniors, consumers should be careful when buying them and take advantage of the mandated free look period. The free look period is time consumers have after buying an annuity to review and understand the terms of the contract. During this time, consumers can decide to cancel the contract and get all of their money back. Consumers should make sure they know the deadline for the free look period when buying an annuity. Miller also said consumers should always verify the policy terms in writing, only work with an agent who provides his or her credentials and only make a check out to the company issuing the annuity, not the agent.
“Annuities can help provide income over a long period of time and can be part of a retirement income plan,” she said. “But consumers, especially seniors who will be depending on this income stream, should consult trusted family members or financial advisers, and get answers to all their questions before making any purchases.”
Source: Pennsylvania Insurance Department
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