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How to Purchase Annuities


Forbes recently published an article called  “How to Buy an Annuity” by John Egan. This article includes tips to begin and continue the journey towards purchasing an annuity.

A lot of retirees who could benefit from investing in annuities typically steer clear of them, and it is because many Americans underestimate how long they live. It is quite a loss in the long run, because according to Forbes, annuities have many upsides, and one is longevity. 

“One of the biggest risks of retirement is outliving your money,” said Brian Walsh, CFP, manager of financial planning at SoFi. “If you are worried that you will live a long time, annuity payments that cover a certain portion of your expenses when combined with Social Security could be worth consideration.”

Determining whether to buy an annuity is the first step.

1. Search for a Financial Advisor

Recognize Your Financial Objectives

Consider these questions:

  • Do I desire consistent lifetime income?
  • Do I want to postpone paying investment-related taxes during my years of highest income?
  • Do I wish to gain from distributions spread out over a set period of time?
  • Do I wish to delay payments until I begin to receive Social Security benefits?
  • Are you willing to invest a chunk of change now, in order to experience gains in the future?

2. Comparison-Shop for Annuities

Although there are a significant number of sources for annuities, life insurance companies are not the only ones. Consider all of your options, including insurance agents, financial planners, brokerage firms and banks.

If you want to buy an annuity:

Check the company’s financial standing, customer complaints, and online reviews before choosing a life insurance provider..

  • Verify various providers: The first contract that someone tries to sell you is one that experts advise against doing.
  • Verify a provider’s licensing status: Does the prospective insurance agent have a license to offer life insurance in your state? Is the agent authorized to sell variable annuities, if that’s what you’re looking at?
  • Look into the history of the seller: If you’re looking into a life insurance company, check out the company’s financial health, consumer complaints and online reviews.

3. What Type of Annuity to Buy?

The National Council on Aging advises deciding on an annuity based on the commencement date, rate of return, length of payout period (such as five years or a lifetime), and whether you want a lump sum payment or regular payments.

Generally, annuities fall into three buckets:

  • Fixed annuity: A fixed annuity guarantees a minimum interest rate and a fixed amount of payments. 
  • Variable annuity: Payments into a variable annuity can be directed toward several investment options, such as mutual funds. The payout is based on how much money you put in, the investment returns, and the fees and other costs. 
  • Index annuity: An index annuity is a hybrid between an insurance product and a securities offering. The returns from an index annuity are tied to a stock market index. 

Our top annuity picks are here.

4. Check Out the Fees

Fees are one of annuities’ main downsides. Therefore, before purchasing an annuity, you should find out everything about its fees.

“Historically, annuities are known for having extremely high fees, which is troubling because fees can severely impact the long-term growth of your money,” Walsh said.

Variable and index annuities usually charge higher fees than fixed annuities. Different annuities come with different fees, but a buyer typically can expect to pay 2% to 3% in fees and commissions. 

5. Annuity Provider is Key

Once you’ve researched your options, it’s time to figure out where to buy the annuity. 

Things to consider are:

  • Are you leaning towards buying the annuity directly from a provider?
  • Are you fine with buying the annuity online or over the phone?
  • Would you rather purchase the annuity in person, such as at an insurance agent’s office?

6. Apply for an Annuity

You must submit an application if you want to buy an annuity. Before submitting, make sure you truly understand how the annuity works. Always ask questions.

7. Funding Method Options

You must choose a funding method when you purchase an annuity. Funding options include payment from sources such as a checking account, savings account, investment account, retirement account or inheritance. Additionally, you might be able to purchase an annuity through a retirement plan offered by your company.

8. Free Look’ Period to Keep in Mind

Providers of annuities provide a “free look period.” If you decide you don’t want the annuity, you have the option of getting your money back without incurring any financial penalties. Typically, this window of time after you sign an annuity contract is between 10 and 30 days.

For more information on specific annuities read Brian White’s full article here.

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