Buying an annuity: Six questions to ask


Depending on your situation, an annuity can be a great investment for your future. But is it the right choice for you? Ask yourself these six questions before you invest.

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Annuities basics

Annuities are financial products intended to enhance retirement security. An annuity is an agreement for one person or organization to pay another a series of payments. Usually the term “annuity” relates to a contract between an individual and a life insurance company.

Classifying annuities

There are many categories of annuities. They can be classified by:

Where to get additional information on annuities

For more annuity information, contact your life insurance agent or financial planner. You may also want to contact the following organizations:

What if I lose my annuity policy?

If you cannot find your annuity policy, there is no need to panic.

For starters, most insurers issue quarterly or yearly statements. If you have not received one or need to reach the insurer immediately, contact the agent or financial planner who sold you the annuity. You may also want to review your canceled checks to see where you wrote the check.

How often should I review my annuity portfolio?

You should review your annuity portfolio as often as you would your other investments.

Depending on the type of annuity, you should review it at least once a year. Of course, a major change in your family such as a serious illness, a new baby or even starting a business should trigger a call to your insurance agent or company representative to discuss changes in your financial planning. If you change your plans, find out whether this will cost you anything and if so, how much.

What is a lifetime annuity?

You can think of a lifetime annuity as investment vehicle that functions as a personal pension plan. Sometimes referred to as “single life,” “straight life,” or “non-refund,” these are a form of immediate annuity that provides income for your entire life. The payments can be increased to cover a second person. This is called a “Joint and Survivor” annuity. While most provide income for life, some may offer the option of payments for a fixed number of years.

What are deferred and immediate annuities?

Deferred annuity

This type of annuity is good for long-term retirement planning for the following reasons:

What is the difference between a fixed and variable annuity?

Fixed annuities pay a “fixed” rate of return. When you receive payments, the monthly payout is a set amount and is guaranteed. Fixed annuities may be a good choice for:

  • Conservative investors who value safety and stability.
  • Those nearing retirement who want to shelter their assets from the volatility of the stock or bond market.

What are the different types of annuities?

Fixed vs. variable annuities

How will I receive my annuity payments?

An important decision in purchasing an annuity is deciding how you want to be paid. You can select annuity payouts for a set period of time or continue for your lifetime. With some options, a beneficiary can be designated to receive payments upon your death. Here is a review of several of the options.