Don’t skip this one - I’m serious. There’s no such thing as too early for retirement planning, but there is definitely a huge problem with being too late for retirement. At the very least educate yourself now on the options, so that when you hit 30 you will know that you’re in real trouble if you haven’t started your retirement program.

If you’re over 30, then you really need to get on the ball! If you’ll remember, last week I explained the Rule of 72, the shortcut that helps you figure out how many years it will take for your money to double on compound interest. Look at that chart again - how many doubling periods do you have left before you hope to retire? For that matter, how much money do you think you’ll need?

We’re talking the last 20 to 60 years of your life. How can you be certain that what you can save will be enough?

Have a Plan

I have mentioned before, there’s no such thing as a "bad" financial product, just a poor choice for what you hope to accomplish financially. First and foremost, you have to know what you hope to accomplish, and the best way to figure that out is to know your options.

As a word of caution, some insurance companies will play on your fear of not having enough money to live until you die, and your ignorance of the options. There is a financial product called an annuity that they may offer you, touting it as the only thing you’ll need - when in fact annuities have a very special use.

Annuities

In short, an annuity guarantees you a paycheck until you die, and in some cases gives a death benefit too. You can buy an annuity in two general forms - immediate, and deferred. With an immediate annuity, you give them one large lump sum and your "paychecks" start immediately. With a deferred annuity, you make payments until your annuitization date, which is pre-set in your contract, at which point you have a choice - take out the money in one lump sum, or start receiving your "paychecks."

If you take out your money any time before this date, you will get a surrender fee - which is often quite large - and once you sign the paperwork to receive your "paychecks," you can’t get your money any other way, and you can’t change the amount you are paid. The deal is sealed.

So what’s the problem?

You could do better investing your money outside of an annuity, since they charge so many fees to have the annuity - so-called mutual fund maintenance fees. Plus, if an annuity is your only post-retirement income, you may be in for some nasty surprises when an unexpected bill shows up, since you absolutely cannot withdraw any additional money.

It’s not all bad though. If you have so much money that it is becoming a tax problem, an annuity is a fantastic way to squirrel it away from Uncle Sam. Outside of that, annuities are just another way for an insurance company to make 12% from your money while giving you 6% or less.