Is an Annuity Right for You?

While most people think of annuities in connection with retirement, you can use an annuity in other ways as well. A financial professional considers annuities to be one of the tools available to help you preserve and grow your portfolio. So, it is in your best interests to consult with a professional to determine if an annuity will help you.

Annuities: Non-retirement Uses

Annuities are very specialized financial vehicles. Federal and state regulations greatly favor the use of an annuity for retirement. But, there are a few non-retirement uses with an annuity too.

The Structured Settlement Annuity

The first, and one of the most common, is the structured settlement annuity. This is an annuity that you receive from winning a lawsuit. Most of the people that win big lawsuits have large medical bills and will need care for years. So the judge, an accountant and a lawyer figure out the best annuity for each person. If you ever face this situation, your lawyer should help you through it and explain all the consequences to you.

Annuities and Lottery Winnings

Another use of an annuity is winning a lottery. Even if you only win thousands, putting the money into annuities may give you great benefits. The structure of an immediate annuity will mean that you, or your spouse, can't run through the money quickly. Many lottery winners find themselves in financial difficulty because of lack of planning. Since you can withdraw a percentage of the annuity every year, you are not loosing control of the money while you live your life. As with all long range planning, it always helps to talk to someone who is trained in the field to help you.

Annuity to Protect Inheritance

Along with lottery winners, heirs often have to work out what to do with a lump sum. This situation is often faced by college students who lose grandparents. By talking to a CPA who specializes in college planning, a college student can use an annuity so they don't lose their inheritance to the financial aide office. Care should be taken, since any attempt to lie to financial aide is fraud. A CPA can help you navigate the complex waters of federal law and financial aide to preserve your inheritance.

The Charitable Gift Annuity

The other common scenario is the charitable gift annuity. In this situation, you give a lump sum of money to a charity and they pay you interest over a certain period of time. This interest is always less than what you would make on more traditional annuities and you cannot "cash them in." You would normally use this to increase your donation to a certain level (like sponsoring a professorship). A Gift Annuity is most commonly used as a fundraising tool of large institutions.

Annuities are curious animals that can be to your benefit, if you're careful. Always consult a professional other than the one selling annuities before purchasing an annuity.

Since an annuity is basically a way to receive payments over time for a lump sum, many financial professionals use them in other ways than just retirement. While this can be very useful to you, consult your CPA before investing. Like all investing, without help you can spend too much.

Types of Annuities