Why Should You Cash in an Annuity to Pay Off Your Debts?
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In today’s world, where financial crisis are inevitable, a large number of people look for ways to get some additional money. They mostly prefer to get extra money in lump-sum form. The reason is that they could utilize that amount to pay off debt, cover other bills and expenses, and utilize debt settlement services.
What is Annuity?
An annuity is defined to be an economic service that is offered by various financial associations. It plays a role of insurance policy by providing an income on regular basis in return to a lump-sum amount. It is actually a renowned method to transform a retirement fund into a regular source of income. It is adopted by a large number of people as they find it extremely beneficial due to its simplicity, easiness, and less complicated principles.
Benefits of Annuities
The most worth mentioning advantage of an annuity is that it permits you to reserve a large amount of money and waive paying taxes. It does not have any yearly payment limit unlike other tax-waived retirement accounts. It gives you the freedom to put away more money for retirement. It is predominantly beneficial for those who are close to the age of retirement and desperately need to save money for later or make use of debt settlement services.
An annuity gives you freedom to obtain a lump-sum amount whenever you want to cash in. However, most of the retirees desire to arrange assured payments for a definite period of time or the rest of their lives. It actually provides a stable and steady flow of earnings.
Annuity Options
The amount of income that you get from your annuity actually depends on your age, gender, and the annuity services that you select. The general principle is that a man usually receives a greater annuity as compared to a woman. The difference in annuities is majorly due to the variation in life expectancies. Most females are expected to live longer so they acquire the annuity payments for an extended period of time.
There are a number of different options involved in order to get advantages from your annuity. You have possible options such as raising your income every year with an increase in inflation rate. You can even utilize the opportunity of continuing your income for your next of kin in case of your demise.
Cash in an Annuity
In general, an annuity is the major strength of your retirement income. It might also be utilized to pay off your debts or meet other expenses. However, cashing in an annuity should be your last option to get rid of your debts. Typically, annuities are kept as a security for uncertainties and unanticipated tragedies as they offer a regular source of income in the coming future.
The idea of cashing in an annuity for paying off your debts may be alluring for you, but you should not attempt to do so and find other means of available finances instead. Every individual has the right to make his own choices and decisions according to his needs. But, you should act sensibly and rationally and protect your annuity for the future and proper emergencies.
We are listing some of the consequences that you might have to face if you cash in an annuity.
Surrender Charges
In case you give in your annuity before it gets matured, you may be subjected to a surrender charge. This particular charge can affect your primary and overdue income. Therefore, the amount that you are liable to take out will be further reduced.
Taxes
It should be remembered that tax is only deferred on annuities yet they are not tax-exempted. When you cash in an annuity, your income becomes liable for tax payment. Thus, if you take money out to pay off your debts, you should be prepared to pay taxes as well.
Cashing in an annuity might be the most rational idea if you are about to lose your home due to debt or unpaid mortgage. However, if you still have an opportunity to put up your home for sale or discuss your financial situation with the mortgage company, you should not opt for cashing in your annuity. You may also cash in an annuity if you or some immediate family member is suffering from a fatal illness and you have to bear medical expenses.
Author’s Bio
AJ has a wide experience of advising on annuities as well as debt settlement services. She has written various articles and blogs about the magnificence of annuities as a steady and reliable source of income.