10 Questions To Ask When Buying An Annuity


Thinking about purchasing an annuity? Before you buy one, ask these ten questions to make sure you’re doing the best you can towards creating a comfortable retirement income.

Question 1: Is An Annuity Right For Me?

If you are looking for another tax-advantaged investment besides IRAs and 401(k) plans, a retirement annuity may be right for you. It provides a way to create fixed income you can access when you’re retired. 

Question 2: What Types Of Annuities Are There?

Three basic types of annuities exist:

  • Fixed annuities, which come with a minimum guaranteed interest rate and a fixed number of periodic payments, and are regulated by state insurance commissioners
  • Variable annuities, which are registered with and regulated by the Securities and Exchange Commission (SEC) and typically involve mutual funds
  • Indexed annuities, which are regulated by state insurance commissioners and pay a rate based on a specific index, such as the S&P 500

Question 3: How Does An Annuity Work?

Think of an annuity as an insurance contract. You buy one to grow your retirement income. Essentially, you’re investing your money with the insurance company you’re purchasing your annuity from. In return for your investment, the company provides you with income in the form of regular payments over the course of many years. 

Question 4: Does The Annuity Have A Guaranteed Interest Rate?

Of the three types of annuities available, fixed annuities come with guaranteed interest rates. Many investors find this attractive because it provides a predictable income stream. 

Question 5: How Can An Annuity Help My Investment Strategy?

Investment advisors typically recommend diversifying your portfolio. An annuity adds diversity to your retirement investment strategy, providing a reliable source of income. 

Question 6: What Payout Options Are Available?

Payout options can include the following (you’ll select one when you buy your annuity):

  • Specific payments for a guaranteed period
  • Fixed or variable payments during your lifetime
  • Income during your lifetime plus payments to your beneficiary for the remainder of the period
  • A joint annuity with the beneficiary receiving payments for life

Question 7: When Can Withdrawals Be Made?

You can make withdrawals without penalty when you’ve reached the age of 59 ½. 

Question 8: How Much Do Annuities Cost?

Fees vary between different agencies, so check with your broker. According to the Charles Schwab Corporation, the average cost of a variable annuity is 2.3%.  

Question 9: Why Choose An Annuity Over Another Investment Vehicle?

Annuities can provide a fixed income. They shouldn’t be your only investment, however. The best retirement financial plans provide income from a variety of sources. 

Question 10: How Do I Learn More?

Talk with your financial advisor or insurance broker to learn more about annuity options.  


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