Choose the annuity that is right for you
An annuity is a financial product that provides a guaranteed income stream for a certain time frame or the remainder of your life. It can be the perfect option for those who want to ensure a steady cash flow in retirement. Choosing the right annuity can be daunting due to all the options and features for each product. This guide will share tips to help you choose the right annuity product.
Determine your goals and needs
You should evaluate your overall financial goals and needs when considering an annuity. Figure out how much income you will need in retirement and how long you want it to last. Consider your current financial situation, your health, and any other sources of retirement income, such as Social Security, pensions, or savings.
Understand the types of annuities
There are quite a few types of annuities. Each has unique features and benefits.
Some of the most common types of annuities include:
Fixed annuities: offer a guaranteed interest rate for a specific period, typically from one to ten years. They are ideal for retirees or investors who value safety and security in their retirement savings and want a guaranteed and predictable income stream without market risk.
Variable annuities: provide access to different types of asset classes. You can choose from different types of investments called sub-accounts; which can include stocks, bonds or money markets. As the value of the investments fluctuate depending on market performance, so will your account value. Variable annuities might be the way to go if:
You’re comfortable taking investment risk in exchange for the potential for higher returns.
Want the flexibility to invest in a range of underlying assets to tailor your investment portfolio to specific goals and risk tolerance? Variable annuities might be the way to go.
Immediate annuities: will provide you with a guaranteed and predictable income stream that starts immediately. And you won’t have to worry about managing investments or market fluctuations.
Deferred annuities: accumulate savings tax-deferred and have a guaranteed minimum interest rate. This annuity option may be ideal if you are willing to wait until a later date, typically in retirement, to start receiving a guaranteed and predictable income stream for a set period or for life.
Indexed annuities: offer a return linked to a stock market index, like the S&P 500. This is a great choice if you want the potential for higher returns linked to the performance of a market index while still having downside protection against market losses. You have to be willing to accept a cap on the maximum return you can earn.
Evaluate the costs
Annuities can come with various fees, such as surrender charges and administrative and investment fees, which vary depending on the type of annuity you have and the provider you use. Understanding the costs associated with the annuity and how they will impact your overall return is beneficial.
Research your potential provider
It's important to thoroughly research the provider before purchasing an annuity. Look for a provider with a solid financial rating and a good reputation. Check their history of complaints and any disciplinary actions taken against them by regulatory agencies. A simple Google review search may be all that’s needed to help inform your decision.
Talk to a financial professional
Choosing an annuity can be complex and confusing, with many options and fine print to make sense of. Seeking a financial professional’s advice can help bring clarity because they’ll evaluate your needs and determine which direction fits best. They can also help you understand the costs associated with the annuity and how it fits into your overall retirement plan.
Choosing the right annuity can provide a secure and predictable source of retirement income. When you have helpful information and professional guidance, choosing an annuity that's perfect for you makes it much easier.
