Guidelines on Buying an Annuity

Buying an Annuity

Annuities are a great aid for anyone looking to provide an additional level of financial sustainability. Simply put, annuities provide a cash flow, or income, in exchange for a lump sum. With this lump sum, one can generate an income for the rest of his/her life or for a specific period of time, depending on the type of immediate annuity purchased. If income is not needed immediately, a deferred annuity may wish to be considered as a part of a carefully diversified retirement planning strategy. 

Buying an annuity is a major financial commitment. On making these financial decisions, you must take the crucial steps to help you avoid all risks. It is important then, to understand the details of the whole contract before finally signing it. While it may be advantageous to own an annuity, there are different types of annuities and a lot of different insurance companies that offer them. It is important therefore to know the all aspects of the contract to ensure it is an appropriate fit within your plan. With that in mind, here are some guidelines for your annuity purchase success.

Know more about its suitability.  Is this type of annuity right for you? This question will help you align your goals with the contract itself. It is crucial then to take time and research more about its policies, coverage and payment plan. Check if you are also financially capable of handling such annuity.

Review and Compare.  Take note of your financial assets and goals. What part of your assets will you be willing to give up to invest in an annuity? There are many aspects to deciding this question, and some are:

? Time Scope. It is best to know how much time you will have until you will need your assets.

? Asset Distribution. It is vital to see how your assets are divided, and how it supports your needs and goals.

? Goals. Make sure you have properly considered your income needs, budget, and other assets before making an annuity purchase.

? Length of Retirement. Let’s face it, it is crucial to be certain that your funds will last throughout your lifetime. At retirement, income generation slows down; an annuity may help provide income in retirement in lieu of employment.

It is also advantageous to know that costs of present living will change. Future costs should be taken into consideration before purchasing an annuity.

When choosing within the array of available annuities, it is advantageous to plan beforehand the distribution and use of the pension. During your product selection, see which fits your life’s needs, its flexibility and best of all, profitability to your future goals. Review and check your strategies and make sure you leave no question unanswered. Buying an annuity may help you face future with more certainty; it is very important to understand all the mentioned factors in order to have the best of your investment.

Annuities are best suited for long term investors.  Any withdrawal prior to age 59 ½ is subject to a 10% tax penalty as well as regular income tax.  Annuities often also have a surrender schedule, meaning that withdrawals may be subject to a penalty by the insurance company if not left in for a predetermined amount of time.  Any guarantees on principal invested is based upon the claims paying ability of the underlying insurance company.