If stocks as a whole were generally too risky and unpredictable to invest in than the financial instrument called the variable annuity would never have come into existence.  While this articles isn’t annuities explained,  the variable annuity is essentially an insurance policy on mutual fund investments.  The insurance company guarantees a minimum return per year if the annuity is held for so many years.  The exact terms vary from annuity plan to annuity plan, but the guarantee can be as high as 7% per year.  If you insurance company can promise 7% you know they are confident they’ll earn at least 8% on your money.  That is a much better deal than 4% in a bond right now.

For individual investing versus mutual fund investing a case can be made that the added cost of investing in mutual funds (front load fees, annual maintenance fees, and hidden fees like share churning) can remove any gain experience may have held.  As long as you maintain a diversified portfolio or even just buy an index fund with fees as low as 0.5% per year, you should match the average mutual fund over the long haul.  If you don’t enjoy investing I would leave it to professionals, but if you feel a calling to attempt to invest for yourself there is not a strong link between extra education and success.  Most of the education is geared for better marketing and managing of the business than picking better stocks.

You should add some stocks to your retirement account to boost returns it’s not as risky as they say.

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.