Choosing Annuities

On February 16, 2025 By newsroom Topic: Saving And Investing Money

1. Expenses

Annuities often include fees and costs. Be sure to understand these before committing:
- Surrender Fees: Penalties for early withdrawals before the contract term ends.
- Commissions: Sales agents or advisors earn commissions, which are paid by the consumer.
- Monthly Fees: Management fees for annuity investments (e.g., mutual funds).

2. Funding Options

You can fund annuities through various methods:
- Single Payment: Pay a lump sum to start your annuity.
- Series of Payments: Contribute smaller amounts periodically, growing savings over time.
- Social Security: Redirect part of Social Security benefits into annuities for long-term gains (consult a financial advisor).

3. Investment Options

Different types of annuities cater to varying financial goals and risk levels:
- Immediate Annuities: Start payments almost immediately after a lump-sum purchase.
- Fixed Annuities: Offer guaranteed rates and predictable income for low-risk investors.
- Variable Annuities: Investment returns fluctuate based on the performance of selected funds. Suitable for higher-risk tolerance.
- Equity-Indexed Annuities: Combine fixed rates with growth potential tied to market indexes.

4. Payout Options

Customize how you receive your income:
- Guaranteed Period Payments: Provide income for a set number of years, even if you pass away. Beneficiaries continue receiving payments.
- Lifetime Payments: Income lasts as long as you live but doesn't pass to heirs.
- Survivor Payments: Continues to a designated beneficiary after the holder's death.

5. Withdrawal Options

Know the implications of withdrawing annuity funds:
- Annuitization: Converts the annuity into steady income streams. Payments can be fixed or variable.
- Systematic Withdrawal: Withdraw set amounts on a chosen schedule, with no guaranteed lifetime payments.
- Lump Sum: Cash out the full annuity value, but be aware of taxes and penalties, especially if under 59 \u00bd.

6. Company Stability

Since annuities aren't FDIC-insured, choose a stable provider:
- Credit Quality: Research ratings from trusted financial rating agencies.
- Financial Strength: Look for strong cash reserves and substantial assets under management.
- Company History: Check how long the provider has been in business and their record of underwriting annuities.

Types of Annuities

Fixed Annuities: Predictable, steady income with low risk.
Variable Annuities: Higher growth potential with market risk.
Indexed Annuities: Blend fixed returns with market-linked growth.
Immediate Annuities: Payments begin shortly after purchase.
Deferred Annuities: Investments grow until payouts start later.

Who Should Consider Annuities?

Savers: Ideal for long-term growth without immediate access needs.
Income Generators: Combine growth and flexible withdrawals; suitable for near-retirement.
Retirees: Ensure a guaranteed income for life, covering essential expenses.
Social Security Recipients: Supplement existing benefits for added financial security.

Top Annuity Providers

Genworth
Established: Since 1871; operates in over 25 countries.
Strength: $100+ billion in assets; included in S&P 500 and Fortune 500.
Specialty: Retirement income solutions.
Fidelity
Established: Nearly 70 years of experience.
Strength: Serves over 23 million customers.
Specialty: Variable annuities, investment management.
Prudential
Established: Leader in financial services.
Strength: Daily lifetime income variable annuities and premier options.
Specialty: Investment-oriented variable annuities.
Pacific Life
Established: Over 145 years of service.
Strength: Offers growth and retirement protection solutions.
Specialty: Fixed and variable annuities.
American Equity
Established: Publicly traded, American-owned.
Strength: Rated A- by A.M. Best and Standard & Poor's.
Specialty: Fixed and fixed-index annuities, immediate annuities.
AIG
Established: 160+ years of asset protection.
Strength: Provides income solutions to over 1.5 million Americans.
Specialty: Retirement-focused annuities and long-term financial security.
MassMutual
Specialty: Fixed deferred, income annuities, and life insurance hybrids.
Strength: Combines insurance with investment options.
Allianz
Established: 115+ years of experience.
Strength: High financial ratings, offering fixed and variable annuities.
Farm Bureau Annuities
Established: Since 1939; based in Des Moines, IA.
Specialty: Liability, auto, home, property insurance, and life annuities.
Brighthouse Financial
Specialty: Offers hybrid options, multiple annuity and life insurance products.
Strength: Personalized plans for varied financial needs.

FAQs

How much does a $100,000 annuity pay?
Example: ~$660/month for 20 years at 5% growth.
Can you lose money?
Possible with variable annuities due to market risks.
Best type for risk aversion?
Fixed annuities offer guaranteed returns.
Is an annuity a good investment?
Yes, for steady retirement income - ideal after consulting a financial advisor.
What's the best age to buy?
Median first-time buyers are 52, often between ages 50-64.

Is an Annuity Right for You?

Advantages: Steady income, tax benefits, and flexibility in payouts.
Disadvantages: Higher fees compared to traditional investments.

Carefully weigh your financial goals and consult a professional before making a decision!