A Step-by-Step Guide When Buying Annuities

An annuity is a long-term investment designed to accumulate funds for your retirement. It’s a contract between you and an insurance company that provides steady income for as long as you live. With an annuity, you will make premium payments over time. In return, the insurance company will invest your money and give you a guaranteed income for years.

Like other investment vehicles, annuities are not a one-size-fits-all solution. Due to its specific features and benefits, it’s necessary to research before you purchase an annuity. This guide helps simplify the process of buying an annuity so you can easily find one that fits your needs.

What Are the Benefits of Annuities?

• Guaranteed Income
• Fixed Interest Rate
• Tax-Deferred Investment
• Legacy for Your Beneficiaries
• Death Benefits
• Flexible Withdrawal Options

How To Buy an Annuity?

1. Set Your Financial Goals

Determining your financial goals is the first step toward the annuity buying process. When considering your retirement and long-term financial goals, you may ask yourself some key questions:

• When do you plan to retire?
• Do you want a steady income for retirement?
• How much income will you need during retirement?
• Will you have any dependents to support during retirement?
• What are your other investment options?
• Do you have any specific goals in mind? (Like traveling or purchasing a property)

As much as possible, set clear and realistic goals. You should also take into account your expenses and debts when setting these financial objectives. Do not skip this step because this will determine if an annuity could be a good choice for you.

2. Do Your Research

Annuities come in various types like fixed, variable, and indexed annuities. With so many annuities on the market, picking the best one isn’t the easiest. You can start by differentiating the kinds of annuities.

Fixed annuities provide a guaranteed income, but your investment may not keep pace with inflation. Although it has minimal risk, fixed annuities yield lower returns. On the other hand, the returns on variable annuities are not guaranteed, but it has the potential for higher gains. Indexed annuities are a hybrid of fixed and variable annuities, which means they have a good mix of risk and return.

Assess the different types of annuities and find one that aligns with your financial goals and risk tolerance.

3. Get Annuity Quotes

Annuity rates vary depending on the insurance provider. This is why we recommend shopping around to compare annuity quotes. Since purchasing an annuity is a once-in-a-lifetime decision, do not accept the first contract offered to you. Although it’s time-consuming to ask for quotes from different providers, it will all pay off in the end.

Always take the time to explore your options and compare annuity features and benefits. There’s a higher chance you could get a better deal by shopping around. 

4. Find a Reputable Insurance Company

As mentioned in the earlier section, annuities are typically purchased through an insurance company. Some banks, brokerage firms, and mutual fund companies also offer annuity products to their customers. 

Regardless of the financial institution you purchase from, look for a provider with strong credit ratings. The higher the credit ratings, the lower the risk of bankruptcy. An A-rated insurance company has a solid financial footing and a good reputation. 

You can look at the provider’s credit ratings from agencies like Standard & Poor's (S&P), Moody's, and Fitch Ratings. 

5. Submit An Application

The next phase of the annuity buying process is completing the application. To purchase an annuity, you’ll need to provide information like your name, date of birth, address, Social Security number, and the names of beneficiaries. You can think of this process as opening a new bank account. 

It’s a good idea to review your application and double-check all the information. Any mistakes or inconsistencies can slow down the processing time.

After submitting the application, you may now fund the annuity. Funding options include a lump sum of cash, regular premiums, or funds from your 401(k). 

Talk With an Insurance Agent Today

If you need help in building annuities for your retirement portfolio, Local Retirement Group has you covered. We specialize in various annuity products that can be tailored to your specific goals and needs. Our agents will be by your side and help manage your financial strategy.  Reach out to our staff today for more details.