How to Choose the Best Annuity for Retirement

An annuity is an investment product that is sold by insurance companies and other financial institutions. They are meant to hold and grow funds, and they are often used as a means to save for retirement. When you invest in the annuity, you can choose a payout system that can begin immediately or at some point in the future. For example, you might make an investment of $200,000 when you are 60 and then start receiving income in payments when you are 70.

Of course, that is just one example. There are several main types of annuities available, and many will wonder which of these will be the best annuity for retirement. These are known as fixed, variable, and indexed. We answer the question “what is a fixed annuity?” here.

Fixed Annuities Are Great for Retirement

Fixed annuities are risk-free and you will earn a stated interest rate on your money that will be paid out the same each year. There are two subcategories of fixed annuities called immediate and deferred annuities. An immediate annuity begins payments a short time after you invest and can be for life or for a number of years. This is the type of annuity to get when you are just about to retire or you are already retired and you want to have a safe and consistent income.

A deferred annuity is a good option for those who want to save money for retirement later. It can be a good way to build retirement income and will ensure that you have a guaranteed return. Keep in mind that these are not affected by the stock market, unlike variable annuities.

For those who have a more conservative approach to their finances, and who like the idea of having a constant, steady payment, a fixed annuity could be the best annuity for retirement. However, it’s still a good idea to learn about the other options.

Variable annuities could work for retirement, as well. It’s important to note the differences between the fixed and variable annuities, though. These allow for either a lump sum or a series of payments for investing. The company will then make payments to you at a later date. These annuities have two phases—accumulation and payout. As the name suggests, during the accumulation phase, you are paying money into the annuity and have a range of investment options. During the payout phase, you receive payments from the annuity.

The money that is invested in the accumulation phase will have an interest rate that varies depending on the performance of the money you’ve invested. It can be great when there is a bull market, but it could cause your payments to be lower during a downturn. While they could be used for retirement, there is more risk than with a fixed annuity.

Indexed annuities are tied to the performance of an index like the S&P 500, for example. They will provide you with returns that are based on that performance. However, there is a certain minimum that they will not fall beneath. However, these annuities may not provide retirees with the consistency that they would get from a fixed annuity.

What to Consider When Choosing the Annuity

Below are a few things you need to think about when you are choosing and buying an annuity of any sort. Keep these in mind, and it can make choosing the best annuity for retirement easier. Also see The Pros and Cons of Annuities

Interest Rates

In most circumstances when making purchases, you want to buy when interest rates are low. However, this is not the case with annuities. When you are buying an annuity when the interest rates are higher, you will get more income for the same amount of investment money.

Therefore, it could be a good idea for those who are planning for retirement to wait for the interest rates to rise. Some might choose to stagger the annuity purchases across several years. This will reduce the risk of putting too much money into an annuity when the rates are low.

Your Age

You should also think about the age at which you buy the annuity. You don’t need to buy the annuity when you are young, but you don’t want to wait until you are nearing 80 to get an annuity either. Some companies will not even sell annuities to people who are over 80. Often, getting an annuity around 60 will be a good idea. You can start to withdraw money when you retire in 10 years or so. Of course, it will all depend on when you plan to retire.

The Options

Consider the options you need. When you buy an annuity, the more options you buy will mean that you are going to be getting lower payments. You should only choose options that align with your needs. For example, those who do not have any dependents should consider getting a basic annuity for retirement. This will provide them with the highest payments. However, along the same lines, you shouldn’t pass up options that you do need just so you can get higher payments.

Always take the time to think about your specific needs when it comes to the annuity you choose for retirement, as well as the rest of your retirement planning. You do not want to put all of your savings into an annuity, even a fixed annuity. It is always risky to put all of your eggs into a single basket. For example, if you have all of your money in an annuity, it would be difficult to get out cash quickly if you have an emergency.

Companies to Consider for Annuities

Today, many companies offer annuities for retirement. Just as it is important to know how to choose an annuity, you also need to be sure you are choosing a quality company. Some of the best options include New York Life, Pacific Life, CUNA Mutual, AIG, and Jackson National Life. Take the time to explore options by these and other companies to find your best annuity for retirement. We currently have 2021 reviews for Nationwide New Heights Select, American Equity AssetShield and f&g annuities and life. We will have more reviews in the coming weeks.