Former Main League Baseball participant Bobby Bonilla collects a $1,193,248.20 verify from the New York Mets each July 1, and he’ll proceed to take action till 2035. The catch? He hasn’t performed for the workforce in 24 years.

Bonilla scored this deal in 2000, when the Mets nonetheless owed him $5.9 million. Nevertheless, the all-star participant agreed to defer his fee to let the Mets put money into the workforce and stadium. In return, the Mets agreed to pay Bonilla again $29.8 million over 35 years — one of many MLB’s most well-known offers ever.

In actual fact, ever since, July 1 has been generally known as Bobby Bonilla Day.

“For Bobby Bonilla, they’ve taken large lump sums of cash [and] as a substitute of giving [him] cash up entrance, they’re going to convert that cash right into a future stream of revenue funds,” stated licensed monetary planner Louis Barajas, CEO of Worldwide Non-public Wealth Advisors in Irvine, California. Barajas can be a member of CNBC’s Monetary Advisor Council.

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Whereas most buyers cannot anticipate a deal something much like Bonilla’s, they do have entry to the same monetary product referred to as an annuity.

An annuity is a lump sum of cash, usually taken out of a retirement plan, which is transformed right into a future stream of revenue, or annuitized. Insurance coverage firms assure funds for a set interval that may span the remainder of your life or past. Funds would possibly start instantly or be deferred.

The attract for buyers is a assured stream of revenue, a lot much like Social Safety or pensions. That may alleviate fears of operating out of cash in retirement.

How do insurance coverage firms decide how a lot cash they are going to offer you? It is based mostly on a few issues, stated Barajas. These embody the speed of return they assume they’ll earn on the cash you give them, and your life expectancy, added Barajas.

Demand for annuities has soared this 12 months amid considerations in regards to the financial system and lingering hints of a possible recession. Annuities struck a report sale of $310.6 billion in 2022, in response to estimates launched by Limra, an insurance coverage commerce group.

Greater than half, or 54%, of savers are contemplating a sort of assured lifetime revenue, in response to a survey by Morning Seek the advice of for the American Council of Life Insurers.

Annuities are an funding product which have benefited from record-high rates of interest — the upper the rate of interest, the higher the month-to-month charge you are going to get, Barajas stated. Calculations are beginning to change as a result of firms have to determine learn how to profit the patron and individuals are, on common, residing longer, typically to age 95 or 100, he stated.

“If you happen to annuitize it, the corporate has to ensure you that revenue,” stated Barajas. “As soon as it is annuitized, it is assured for the remainder of your life.”

Annuities aren’t for everybody, nevertheless. There are lots of completely different sorts, and a few might be laborious to know or include costly phrases and costs. There may also be restrictions and vital however simply missed advantageous print, together with phrases that make it troublesome or unimaginable to get your principal again in the event you change your thoughts.

Listed here are 3 ways to coach your self earlier than signing an annuity contract, Barajas stated:

1. Have a look at the insurance coverage firm’s fame. You are giving a major sum of money to an annuity supplier, so be sure that it has a great fame, together with a powerful credit standing from an company, reminiscent of AM Greatest or Customary & Poor’s, and favorable evaluations from clients.
2. Vet the agent or advisor. “Do not pull the set off with the primary individual you meet,” stated Barajas. Examine that the individual promoting you the annuity has a great fame and a clear skilled historical past. Ideally, choose somebody who is not a captive agent and may work with a number of firms. “I at all times inform purchasers to ask, ‘Are you working as fiduciary for me, and may I get that in writing?'”
3. Think about how an annuity suits in your bigger monetary plan. There are not any good or dangerous merchandise; it is the context, stated Barajas. “What are the professionals and the cons?” he stated. “Each funding has a plus and a minus.” Ensure you totally perceive the dedication you might be about to make and discuss with a monetary advisor about whether or not different merchandise is perhaps a greater match to your wants.