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Annuity and Paying for Senior Living

AnnuityHow to pay for assisted living is a question that comes up often. Having a background in Real Estate and Financial Services, we recommend senior clients talk to a financial planner.  Often financial planners recommend rolling the money from the sale of a home into an annuity.  Read on to learn how an annuity works and if it is right for you.

What is An Annuity?

An annuity is a contract between you and an insurance company.  You invest in an annuity and the insurer guarantees to pay you.  The payments are made on a frequency you choose.  You can choose immediate or future payments with specific intervals like monthly, quarterly, or yearly.  You buy an annuity by making either a single payment or a series of payments.  Your payment is invested, and you receive a payout based on your policy.  Think of an annuity payout like a paycheck.  You know exactly the amount and when you will receive your money.  This helps you budget..

Why Do People Buy Annuities?

Annuities provide three main benefits:


  • Periodic payments on which to budget.  People typically buy an annuity to manage their retirement income
  • Death benefits.  If you die before your payout, your beneficiary receives your payments
  • Tax-deferred growth until you withdraw your money

What Kinds Of Annuities Are There?

There are three basic types of annuities, fixed, variable and indexed.  Here is how they work:

  • Fixed annuity.  The insurance company promises you a minimum rate of interest and a fixed amount of periodic payments.  Fixed annuities are regulated by state insurance commissioners.
  • Variable annuity.  The insurance company allows you to direct your annuity payments to different investment options, usually mutual funds.  Your payout will vary depending on how much you put in, the rate of return on your investments, and expenses.  The SEC regulates variable annuities.
  • Indexed annuity.  This annuity combines features of securities and insurance products. The insurance company credits you with a return that is based on a stock market index, such as the Standard & Poor’s 500 Index. Indexed annuities are regulated by state insurance commissioners.

Annuity Risks, Fee, Fraud

All investments carry risks.  And annuities are an investment.  It is important you are well-informed before committing to an annuity contract.  Talk with a reputable financial adviser before committing to an annuity contract.

Make sure you read and understand your annuity contract.  All fees should be clearly stated in the contract.  Ask you financial planner about extra fees like administrative, mortality and expense risk, underlying fund, and surrender.  Also ask about early withdrawal penalties.

Fraud and scams are common among seniors.  Talk to your financial adviser about their license and confirm they are registered.  You can use this tool to verify.  Most variable annuities are offered with a mutual fund. State law requires mutual funds to file a prospectus and regular shareholder reports with the SEC.  Before investing, read these important documents, which your financial adviser can provide.

An annuity is a great investment tool to use for payout in retirement.  Paying for senior living is often the main reason clients avoid considering Independent or Assisted Living.  If you are looking to relocate to a senior living home and need to sell your home, talk with a financial planner about rolling the proceeds into an annuity.

Want more information on selling or buying a home, alternative senior housing, and not outliving your money?  Sign up for our free senior guide on real estate, aging-in-place, and not outliving your money in retirement.