In a recent article for Marketwatch, Melody Juge offered “3 tips on purchasing your annuity.” Many people realize during retirement preparations that they will need more income than Social Security and any pension income will provide. Income annuity products can provide that income. These products can be used for many different reasons, including a guaranteed income stream, assisting in the payment for long term care and even residential or assisted living costs for one or both spouses in the future. You must research any annuity product before purchasing to make sure that it fits your needs without being too much of a cost burden.
Since annuities are legal contracts, you are guaranteed a free look period where you can change the contract terms or even cancel some annuity contracts. This period ranges from 10-30 days based on individual state regulations and insurance carriers. If you want to change your contract after this free look period, you will incur surrender charges during the surrender period of your contract.
If you know your annuity contract terms and purchase a product that is right for your individual needs, you won’t have to worry about free look periods or surrender charges. Choose an annuity that offers you flexibility with and control over your money in the way that you wish to have. Most people choose annuities for the income payments, but some people also want the flexibility to use a portion of their money if an unforeseen circumstance arises.
Here are three tips given in the Marketwatch article to retain some control and flexibility over your money. You can purchase multiple annuities at different times using the money you have allocated for an annuity. If you have $300,000, you can buy three different $100,000 annuity products. There are a few benefits to this strategy. If interest rates rise, you will be able to take advantage of a higher interest rate from your later annuity purchases. Also, in the case that your financial needs or health changes in any way, you will have access to some money without disrupting all of it. Some people also find it easier to manage annuities with smaller sums rather than one larger sum.
Next, you should figure out when you want the additional income from your annuity products to begin. Some people want additional income 5-10 years after retiring. Others want to use their annuity income at an advanced age of 80 or 85. If you stagger annuity purchases to start at different times, you can adapt your annuity income payments to specifically meet your needs. Many people believe it’s wise to buy annuities from different insurance carriers when you are purchasing multiple annuity contracts. Starting annuity income at different times is another way you can retain flexibility with your annuity purchase.
Look carefully at the lifetime income riders. They can be costly, but are effective in retirement planning. If you are purchasing multiple annuity products, you might want to add lifetime income benefits to one but not all of them. Some people need the income benefits for their spouse as well, but not everyone needs that. Look at your future income needs and the costs of lifetime income benefits. Elect for these riders when they offer you value, but realize that you don’t necessarily need them for each annuity purchase.
Annuity products aren’t known for their flexibility, but they can be purchased in a way that allows you to retain some control and flexibility over your money.
Written by Rachel Summit