How to Choose an Annuity
Annuities can be an integral part of financial wellness plans for the golden years of your life, as well as a plan for the future of your family’s financial security. But, like many financial decisions, choosing an annuity can be intimidating. Here are four simple steps to choosing an annuity and starting to safeguard you and your family’s future during your retirement:
Choose when payouts begin
There are two options for the date that payouts begin on an annuity. The first is called deferred, meaning that payouts will begin in the future at a previously determined date. The second is called immediate, which means payouts begin shortly after the first premium is paid. In this case, the premium is a lump sum.
Select the rate of return deciding how to choose an annuity
This selection depends very much on the level of financial risk that you are comfortable taking. There are three usual options:
These payouts are based on the amount that is guaranteed in the contract. The company bears the investment risk so the client doesn’t have to, and the payments are typically the same regardless of timing.
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Variable
Although some variable annuity contracts may offer minimum payout guarantees, both the account payout and the earnings are variable and not guaranteed with this type of annuity.
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Indexed
This is a combination of the two previous, essentially. Indexed rate of returns provide a minimum guaranteed interest rate and an interest rate tied to the market index.
Select payout term when – how to choose and annuity
These are very similar to life insurance terms. There are five types:
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Lifetime of policyholder
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Lifetime with remainder of funds to beneficiary
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Guaranteed for five, ten, fifteen, twenty years, etc.
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Joint and survivor
Of these, all of them except for the “lifetime of policyholder” allow remaining funds to be transferred to a survivor or beneficiary at the end of the policyholder’s life.
Select payout type
There are two standard types of payouts on an annuity. Lump sum withdrawal is when the policyholder receives all the funds at once, and some fees can apply to this. The other type, annuitize contract, is when monthly payments are sent to the specified recipient in the previously chosen payout term.
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