Introduction
A “good” retirement income portfolio will include a diverse set of income streams. Annuities are a popular choice among those looking to include a “lifetime income” type of product. Especially those who do not have a traditional pension. But according to research very few older Americans (10%) own a commercial annuity. The reasons behind this aren’t exactly known, but one reason typically cited is the relative complexity of annuities.
Working with a financial advisor can help reduce these complexities and asking the right questions can be key. This guide covers a few of the essential questions to ensure you make an informed decision
What is an Annuity?
“An annuity is a contract between you and an insurance company. In exchange for a lump sum or a series of payments, the company promises to provide you with a steady stream of income either immediately or at some point in the future. This financial product is designed to help you manage your retirement income and ensure you don’t outlive your savings.”
There are several different types of annuities:
Fixed Annuities – Guaranteed returns with a set interest rate.
Variable Annuities – Returns based on market performance.
Indexed Annuities – Earnings tied to a stock market index.
Immediate vs. Deferred Annuities – When the payout starts.
Each company that offers these products will also have riders, add-ons and other variations of each of these products to wade through. It’s easy to see how complex shopping for an annuity can get.
Key Questions to Ask Your Financial Advisor
Tabulated below is a set of questions (not exhaustive) that can be asked of a financial advisor when beginning to investigate annuities.
| Initial Question | Follow Up Questions |
|---|---|
Is an Annuity Right for Me? |
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How Much Will an Annuity Cost? |
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What Are My Payout Options? |
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What Affects My Annuity’s Growth? |
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What Happens If I Pass Away? |
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Red Flags to Watch Out For
In anything you buy, do not let a salesman pressure you into buying a product before you believe you’re ready.
Hidden fees and complex contract language are important to clarify with your financial advisor and the annuity salesman.
Determine which withdrawal policies best fit your plan and ensure they are not overly restrictive for your you.
And always do your research to make sure the company you are dealing with has as solid financial grounding and a good credit rating.
Conclusion
To make an informed and confident decision regarding annuities, take your time to research and compare multiple providers. Consult with trusted financial advisors to gain various perspectives, ensuring that the annuity chosen aligns with your financial goals and provides peace of mind rather than stress. Ultimately, your approach should prioritize security and clarity while safeguarding your future and the well-being of your loved ones.