Annuities

Attorney Edward H. Adamsky of the Adamsky Law Offices, has been in the private practice of law since 1992. He is licensed to practice law in Massachusetts and New Hampshire and his main office is in Tyngsboro, Massachusetts. Attorney Adamsky concentrates his practice in Life & Estate Planning and Elder Law.

Attorney Edward Adamsky is past Chair of the Elder Law, Estate Planning and Probate Section of the New Hampshire Bar Association, past President of the Merrimack Valley Estate Planning Council, and a member of the New Hampshire Estate Planning Council and the National Academy of Elder Law Attorneys (NAELA). He is a former board member of the Massachusetts Chapter of NAELA and Past President of the New Hampshire chapter. He was a Member of the Board of Directors of Community Crossroads (formerly known as Region 10, Community Support Services), a New Hampshire agency that provides services to Developmental Disabled individuals and families.

An annuity is an investment tool and a contract. Each one has specific terms, rights, procedures, and restrictions. An annuity can seem a lot like a bank account, but with some major differences. With an annuity, the interest you earn will only be taxed when you withdraw it. With a savings account, you pay tax on the income whether or not you take it out of the account. A savings account may pay a somewhat lower interest rate than an annuity, but annuity interest rates may be fixed, or may fluctuate the same way bank interest rates do.

With a savings account, you can withdraw your money at any time without penalty (Certificates of Deposit have early withdrawal penalties, but they usually only involve loss of interest, not principal). With an annuity, there will probably be a fee to withdraw your money in the first few years (this is often called a surrender charge). These fees range from five to ten percent of your money. These early withdrawal fees can eat up all of the gain from higher interest rate, and some of your principal too. Many annuities have high “teaser” rates for the first year and then the rates go way down in year two.

A major issue with annuities is that the salesman usually makes a pretty large commission on the sale. Your bank makes no commission from your savings account deposit. The banks should be clear in warning that their investment advice is not guaranteed, and that they get fees from annuity sales, but these warnings are sometimes handed out in a large packet of information that people do not really read. Getting a commission does not mean the salesman (or the bank) is corrupt, but it is something you should take into consideration when making your investment decision. Commissions can lead salesmen to suggest investments you would not normally consider.

For the most part, if you have a few thousand dollars in the bank, even if it is tens of thousands, you probably do not need an annuity. Do not let a bank direct you to an in-house investment advisor. If you want to ask about annuities, feel free to do so, but you should take the initiative, not the salesman or bank teller. And, before you buy anything, check with your other advisors such as your accountant, your insurance professional, and your elder law attorney. An annuity may be right for you, but only after you understand the investment and feel sure it is what you want and need.