How to Select the Right Annuity Plan for You

How to Select the Right Annuity Plan for You

An annuity plan is a great way to generate long-term income and save for retirement without the worry of market volatility.

Annuities are mainly used to provide steady income during retirement. When you annuitize, you invest a certain amount with the company and then accept a payout stream that can begin immediately, or even when you pass away. The payouts can be for life or a certain number of years.

There are three main types of annuities: fixed, variable, and indexed. This article will focus on what to look for in each type of annuity plan, as well as what questions to ask before you invest.

Fixed Annuities

A fixed annuity plan promises that you’ll earn a stated interest rate on your money, resulting in the same payout year after year. Below are a few reasons to consider a fixed annuity plan:

  • Risk-free investment
  • Most of the best annuity companies assume all of the risk factors
  • They are not connected with the stock market
  • They are divided into two parts: immediate and deferred annuities

Immediate Annuities

  • Single premium annuity
  • A lump-sum one-time payment is made, which is then followed by periodic monthly, quarterly, or yearly payments from the firm
  • The period between the deposit and the annuity payments is short
  • Payments can continue for life or a set number of years
  • Often bought by retirees for a consistent periodic income, no matter the circumstances

Deferred Annuities

  • Saves money on tax-deferred terms
  • Ideal for long-term goals
  • A guaranteed return regardless of the circumstances
  • Once payouts commence, taxes are applicable on the annuity earnings
  • A 10% per annum withdrawal limit is fixed
  • Hassle-free transfer of money from a deferred to an immediate annuity plan
  • Money can be left for family or charity without application of estate taxes.

Variable Annuities

With a variable annuity, you can make either a lump-sum payment or a series of payments. Below are a few reasons to consider a variable annuity plan:

  • Both lump-sum payments and a series of regular payments are allowed
  • Immediate or future payments that are consistent in nature are made by the firm
  • Includes features from mutual funds, insurance, and tax-deferred retirement plans
  • Mutual fund investments can be made based on the retiree’s choice
  • Death benefits can be added for an additional fee
  • Divided into two phases: accumulation phase and payout phase

Accumulation Phase

  • A variety of investment options are present while depositing money to the annuity
  • Investment options include balanced funds, market funds, and international funds
  • Fund fluctuations might increase or decrease your deposited money
  • Variable annuities issue a prospectus where you can read the terms and conditions for your investment choices. All the risks, transfer options, and withdrawal conditions will be referenced in the prospectus

Payout Phase

  • Periodic payments or one lump-sum annuity payment is made by the firm
  • The interest rate varies according to market changes
  • Benefits might come from the stock market, but market dips should also be considered

Indexed Annuities

With an indexed annuity, you can make a one-time payment or a series of payments. Below are a few reasons to consider an indexed annuity plan:

  • One-time payment or a series of payments can be made and the company returns credits according to certain predetermined indexes
  • It is a tax-deferred investment as taxes are payable only when a withdrawal happens
  • Probation can be avoided using a death benefit and funds can be transferred to the beneficiaries
  • 100% amount withdrawal is possible when nursing home habitation is involved

What to consider before purchasing an annuity

There are several questions that you should ask your retirement planning consultants to get better understanding of any annuity you are considering.

What is the end goal of the annuity?

If you want a consistent income after you retire, then you’ll need a fixed annuity. If you have more time on your hands, then you should consider a variable annuity. If you want your family and offspring to benefit from the funds, then you should consider annuities with death benefits.

What are the immediate and relaxed monetary requirements of an annuity?

Always take into consideration your time-frame and investment needs. If you take out the funds before the annuity matures, you might have to pay considerable surrender fees.

What are the initial and annual fees?

Insurance companies often require up-front and annual costs depending on the annuity you select. Make sure to read the prospectus thoroughly so that you don’t end up paying too much.

What are the surrender charges?

 The surrender period is the duration when customers cannot withdraw money from their annuity without paying a penalty. In most cases, surrender fees decrease as the annuity plan duration increases.

Are waivers available with annuities?

In case of emergencies, such as nursing home transfers, you might need to withdraw your annuity funds. Surrender fees can be waived in some of these cases. Always take into consideration this aspect when choosing your annuity plan.

The Choice is Yours

Every annuity has its pros and cons. One of the major benefits of an annuity is that it allows you to build up money for retirement. We recommend that you access the different types of annuities in order to determine which will work for you and your family. For more information about annuities, contact Secure Money Advisors today at 724-382-1298.

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