Basic Questions Help Determine Your Best Annuity

Annuities do a good job of solving problems faced by most retirees.  In Investor’s Business Daily, Paul Katzeff helps consumers determine “How To Select An Annuity That’s Right For You.”  Whether you are looking for a fixed income that won’t change with the markets, death benefits to leave your children, or guaranteed income that will last for the rest of your life, there is a type of annuity that will meet your needs.  The article points out that there are costs that come with these benefits, including some products with high fees, inflexibility, and complex prospectus’s.  Surrender charges are also typical with annuities so that you keep your money in there for a specific amount of time.  But after that time frame, typically a year or two, your surrender charges for taking money out too soon either decline or go away altogether.  Just keep in mind that annuities are not usually liquid.

Fixed annuities are the simplest products and usually have disclosures around four pages long.  Variable annuities on the other hand, can have a prospectus around 300 pages long.  The best thing to do when considering an annuity is to ask yourself some basic questions about exactly what you need.  People in or nearing retirement might want an immediate annuity that will start paying you monthly income within a year.  That way you don’t have to worry about surrender charges.  If you don’t need the money right away, a deferred annuity is probably best for you.  You don’t have to pay the entire premium in a lump sum and you have the chance to grow your account balance depending on the type of annuity you choose.  Immediate annuities are typically simpler and the less involved an annuity is, the lower the costs and fees.

If you know that you want an exact amount of income monthly, then a fixed annuity might be the right product for you.  Those who are willing to take on some risk for the potential of a greater income payout should look into variable annuities.  Since they invest in securities like mutual funds, your payments are based on market performance.  The article suggests Vanguard as a company selling competitive annuities.  There has been an increased interest in the hybrid annuity product of indexed annuities recently.  Your payments are based on an underlying index, but often have a fixed payout in addition to that, just in case the markets are not up.  If you want to take on more risk, you may get a higher payout.  There are added features for all of the annuity products that can help you tailor your purchase to exactly what you need.  Investor’s Business Daily offers links to some annuity calculators in the article; you can access the Annuity FYI calculator as well.

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