Annuity Rates HQ
Have you ever thought about how much you will be earning at retirement?
Will you make enough to enjoy life?
How do you feel about having your pension plan at the mercy of a highly volatile stock market?
Or are you simply looking for the best annuity rates?
Those are commons questions ask by most individual thinking about retirement like you. The rising inflation cost doubled by low yields guaranteed investment is a great source of concerns. Highly volatile market worries anybody planning their retirement. You have worked so much throughout all your life isn’t just normal that you enjoy retirement the way it should be? This can happen only if you have enough money aside. A good solution could be to buy an annuity. This site has been built to help you understand annuities along with guiding you to find the best annuity rates for your needs.
What is an Annuity?
Put in the simplest words, an annuity pays a steady stream of income to the investor who purchased it.
It is a contract between a company (usually a life insurance company) and an investor (often a retiree) where the company agrees to pay a regular payment to the individual in exchange of a sum of money paid up front. In other words; an annuity is your way to buy a fully secured pension plan where you will be receiving regular payments for the rest of your life.
Annuities are one of the most sophisticated and complex financial product you can purchase. This is why we have designed Annuity Rates HQ to help you understand, in simple words, what annuities are. We encourage you browse the different categories on the sidebar before you make a sound decision of buying an annuity or not.
How Does it Work?
The basic contract of an annuity includes three parties:
#1 The Annuity Company (usually a life insurance company)
#2 The Annuitant (the investor who purchase the annuity)
#3 The Beneficiary (usually the investor)
The investor purchases an annuity and pays an amount up front. The amount could be paid in a single payment (immediate annuity) or through a series of payment over several years (deferred annuity).
At the moment specified in the contract (usually at retirement), the annuity company starts paying a steady stream of income to the beneficiary (or the investor). This is a great investing solution for risk adverse investors since the annuity payment is fully guaranteed by the company.
The beneficiary continues to receive the payments until his death (life annuity) or until the end of the contract (fixed term annuity). Annuities provide a steady and guaranteed source of income at retirement. The annuity rate will be determined by the amount of payments received by the beneficiary. For example, an investor who live until the age of 95 have probably bought one of the best annuity rates on the market. Shopping for the highest payment is another way to improve your annuity rate.
The amount of the payment depends on several factors such as age, gender, number of lives involved (joint or single) and if the annuity is guaranteed for a period or not.
Two Major Types of Annuities
The beauty of an annuity contract is that it can be customized to suit your needs. This is why there are several types of annuities; fixed payment, indexed, variable payments, immediate annuities, deferred, single, joint or survivor annuities. Don’t worry, we cover them all in our Types of Annuities section. While there are several characteristics to annuities; we can classify them into two major categories of annuities:
Term-Certain (or Fixed Term) Annuities:
The term-certain or fixed term annuity pays a consistent stream of income in a form of a monthly payment to the investor. The payment is guaranteed and will be distributed to the investor for a determined amount of time. For example, an investor who is 70 can buy a fixed term annuity paying $2,000 per month for the next 15 years. Therefore, he will be 100% assured to receive $24,000 per year from his annuity contract until the age of 85.
In the event of premature death, the payment continues according to the contract and the remaining payments are made to your estate. The fixed term annuity is the only contract making confirming the amount you or your heirs will receive.
The life annuities or fixed annuities are the most generous type of contract. The investor buys an annuity paying a constant amount of money for the rest of his life. The life annuity can be purchased for a single life, joint life or survivor life. Those types of contract enable you not only to cover your retirement in full but make also sure that your spouse doesn’t lack of money if you were to pass away. On the other side, if you purchase a life annuity and pass away three years later, the annuity payment stop upon your death and your estate is left with nothing. This type of investment provide the best annuity rates for investors since it is a simple contract without much options added.
What is the Investment Return on an Annuity?
As previously mentioned, annuity rates depend on several factors such as age, gender, number of lives covered and if the payments are guaranteed for period of time. Annuity rates vary from companies as well. This is why it is so important to shop before you invest.
In the case of a life annuity, the real investment return is only known at the time of death of the beneficiary. The more you live, the more you receive payments and the more your investment returns is high. In the case of a premature death (e.g. you pass away after receiving only $20,000 or a $100,000 purchased annuity), there is a strategy covering the potential loss on the amount invested in the annuity. It is called an insured annuity.
Is Annuity a Good Investment Compared to Mutual Funds?
The mutual fund universe is as wide as the number of annuities. Therefore, it is very hard to compare both in a general example. If you invest your money in a 100% equity fund, you will go through all ups and downs of the market but your overall investment return should be better.
Nonetheless, this is not the reason why one buys an annuity. The annuity role in financial planning is to produce a safe, steady and guaranteed stream of income to the investor. Therefore, the investment return is not the primary goal for the investor. Peace of mind and steady payments are more important for this type of investor. Depending on your annuity rate stated in your contract, you could beat most bond funds on top of buying security of payments.
Is an Annuity Safe?
Once you retire, there are two possibilities to generate an income stream each month:
#1 You withdraw a monthly amount from your investments and suffer from the stock market fluctuation.
#2 You cash your investments and purchase an annuity.
The annuity is not correlated to the bond or stock market. Therefore, once purchased, nothing will affect your annuity payments. You are not dependent of interest rates or stock market fluctuation. As oppose to most investments, annuity contracts are guaranteed by the issuing party, usually a life insurance company.
If you are not sure how to assess your life insurance company credit strength to guarantee your contract, you will be happy to know that annuities can be also backed by the government up to a certain amount. It is best to contact an adviser for free to know how much annuities are covered in your state.
Why Purchase an Annuity?
In order to know if you should or should not buy an annuity, we draw a quick portrait of an investor who is susceptible to enter in an annuity contract. If you have most of the characteristics below, chances are that annuities are a good product to suit your needs.
You are retired or concerned about your source of income at retirement
You have money invested in the stock market or ready to be invested
You strongly depend on your investment return at retirement (e.g. you do not have a big pension plan or other income stream)
You dislike risk and you are uncomfortable with stock market fluctuations
You are looking for a safe, steady and guaranteed source of income
You do not need a lump sum payment but rather prefer to receive money monthly
If you are still unsure if you should purchase an annuity, you can speak with an advisor for free now.
Where Can You Buy an Annuity?
If you have made your choice to purchase an annuity or you still have questions, you are ready to seek for professional help. Since you will be writing a check to a company in exchange of a pension, it is very important to know more about this company. Annuity companies are usually Life Insurance Companies. Since the payment of the contract is determine by your health and life expectancy, there is no such company in a better place than Life Insurance Company to assess this risk.
Since it is not easy to assess Life Insurance Company financial strengths, we have covered for you several annuities companies. Each of them has specific annuity packages they can offer and you can see which company can offer the best service and product. It is important to select a company that will be able to honor its contract and guarantee your payments. The good news is that you don’t have to worry too much about big insurance companies as their contracts are usually covered by the government as well. Most companies are public and traded on the stock exchange. This also means their financial statements are accessible and you can even go deeper in your analysis to make the right choice.
In order to find the best annuity rates, you should contact a broker who will shop annuities for you and get the best deal in regards to your situation.
If you are still unsure if you should purchase an annuity, you can speak with an adviser for free now.