Are you looking for an annuity but don’t know which one to buy? In this article I’m going to be covering the in’s and out’s of annuities and showing what you should be looking for and what you should stay away from.
Questions You Should Ask Yourself
- What type of annuity do you need? There are two typical kinds of annuities to buy. You have deferred annuities which you pay into over a period of time and at a later date and time will take payment on. Then there is the immediate annuity which you deposit a lump sum and receive a payment immediately from.
- How long is the surrender penalty? Surrender penalties vary. Fixed annuities tend to have longer surrender periods of 10 to 15 years, while variable policies tend be shorter ranging from 4 to 8 years. Immediate annuities don’t have any surrender penalty because you’ll receive your payment right away.
- Do you want fixed or variable? Fixed policies are based off of a fixed interest rate, usually around 5%. Variable policies are based on market performance, much like a mutual fund. If you’re looking for higher interest rates, variable will be your best bet but if you’re looking for liquidity then fixed is for you.
- What kinds of fees are involved? When considering to buy annuity polices you must consider the fees. Variable policies tend to be lower ranging from 4% to 6% depending on how much money you put in. Fixed policies are usually a bit higher ranging from as little as 6% to high as 10%.
- How do you want to structure your taxes? There are also different ways to set up you tax structure with an annuity. You could set it up as a straight annuity taxed deferred, or if you’re looking to transfer some 401k money you could set it up as an IRA, or even as a ROTH IRA and pay your taxes beforehand.
- What kind of riders do you want? Annuity policies come with all types of riders from terminal illness riders, long term care riders, joint and survivor riders, and even guaranteed return riders. The number of option here are endless. To learn more about these riders contact your insurance agent.
In Closing…
These are the questions you should have answers to before you buy your annuity. If you don’t have an answer for each one take time to research each option before you decide on one particular policy.
