Tips to Choose the Right Annuity
Have you always dreamt of a financially secure future free from the scary dark clouds of debt? Some smart investment decisions can turn that dream into a reality. Annuities, financial advisors often say, are one of the best investment options available to you. Offering safety in financially unstable world, annuities can perfectly supplement your retirement income. However, all annuities are not suitable for all people. So you should buy an annuity that fits your requirement. Keep in mind the following things before selecting an annuity:
Understanding and selecting annuities
In order to choose the right kind of annuity you must know the type of annuities. Basically, annuities can be of following types:
1) Immediate and deferred annuities.
2) Fixed and variable annuities.
Immediate annuity vs. deferred annuity
An important choice that you need to make is choosing between immediate and fixed annuity.
What are immediate annuities? If you buy immediate annuities then you would start receiving paychecks immediately after investment.
Are immediate annuities for you? They are for people who are approaching retirement or have already retired. By investing a lump sum, they would be able to enjoy a secured income, in most cases, for the rest of their life.
What are deferred annuities? Deferred annuities are a long term investment. You either pay a lump sum or make a series of payments and receive paychecks after a specified period of time.
Are deferred annuities for you? This would be suitable for young people who have age on their side.
It is explicit that you need to take your age into account while choosing between immediate and deferred annuities.
Fixed annuity vs. variable annuity
What are fixed annuities? Fixed annuities have a predetermined rate of return and are insulated from the fluctuations of the market. You should remember that fixed annuities will give you lower returns.
Are fixed annuities for you? They are a favorite among conservative investors who are not inclined to risk their money for higher gains.
What are variable annuities? Variable annuities offer you a minimum income stream and an excess payment that fluctuates with the market. It can earn you higher profits if the market is strong and can let you down during lean times.
Are variable annuities for you? These annuities are for confident and matured investors who prefer the excitement of stock market.
Personal risk tolerance plays a big role when you decide to choose between fixed and variable annuity. A risk-averse investor who is satisfied with the minimum growth of wealth will opt for fixed annuities. Some people, however, take delight in experimenting with their money and would find variable annuities more tempting as they can fetch higher returns.
Things to consider before choosing an annuity
To make sure that you purchase the annuity that suits you the most, compare them by some common factors:
- Make a comparison of the features and plans of different annuity plans.
- Find out the guaranteed minimum interest rate.
- Be aware of surrender periods and surrender charges if any.
- Try to find out hidden charges or undisclosed fees.
- Know the amount of money you can withdraw annually without being penalized.
- Consider the term of the annuity product.
- Try to ensure that the annuity you would like to buy is tax-deferred.
Annuities are a valuable investment tool which adds great value to your retirement. However, choosing the wrong annuity will cause you monetary loss instead of delivering financial security. So consider your own unique requirements, age and consult a financial advisor before buying an annuity.