Is An Annuity Right For You?
Let’s be completely transparent here. Not everyone needs an annuity. If you can cover all of your expenses in retirement via Social Security, your pension, or other retirement assets, then it’s not worth buying an annuity.
The same is true if you’re not in the best of health since you may not outlive this steady income stream. Also, if you’re looking for higher risks in your investments, then you have better alternatives like high yield bonds or real estate investment trusts (REITs).
But, if you want to diversify your retirement portfolio, are in good health, and want a way to have a monthly income during retirement, annuities might be an option. Additionally, it’s strongly suggested that you only buy annuities after you’ve addressed the following retirement fund investments (in the following order):
- Employer plan with matching.
- Roth IRAs
- Employer Plan
- Traditional IRA
Answer the following questions to make sure an annuity is right for you.
Moreover, before making a final decision, speak with your financial advisor, and ask the following questions:
- Is An Annuity Right For You?
- What are the risks of an annuity?
- Will an annuity help you with your financial objectives and time horizon?
- Are the features and benefits in the annuity, other than tax deferral appropriate for me?
- Does my annuity offer a guaranteed minimum interest rate?
- Does the annuity include riders? If so, how do they work?
- Am I taking full advantage of all of my other tax-deferred opportunities including 401(k)s, 403(b)s, and IRAs?
- Do I understand the fees, charges, and adjustments that come with an annuity?
- Is there a limit on how much I can take out annually without paying a surrender charge? Is there a limit on the amount that I can withdraw during the surrender charge period?
- How will an annuity impact my tax liability?
- How can I guarantee that my beneficiaries will receive any payment from my annuity if I die?
If you’ve answered these questions and decide to buy an annuity make sure to review the contract. If there are parts that you don’t understand or you spotted hidden fees, you do have 30-days to change your mind.
Buying an annuity.
If you’ve done the suggestions listed above, assessed your current and financial needs, and found an annuity product that works best for you, it’s time to buy an annuity.
Your first step will be selecting your provider. Insurance companies like American Equity Investment Life Insurance Company, Nationwide, AIG, and Prudential are good places to start. But, it’s recommended that you turn to a rating agency like AM Best to check out the financial strength and soundness of the company.
Outside of insurance companies, you can buy annuities from:
- Due Annuity
- Annuity distributors, think large brokerage firms, like Merrill Lynch and Morgan Stanley.
- Independent broker-dealers, such as Raymond James.
- Well-known national banks like Bank of America.
- Mutual fund companies including Vanguard and T. Rowe Price.
- Independent agents, brokers, and financial advisors.
After locating a provider, you’ll need to fill out an application in order to lock in your rate. After that, you can transfer funds. You can do this by paying with cash, retirement funds, or transferring money from a brokerage account.