Mistakes to Avoid When Shopping for Annuities

The right kind of annuity can help you achieve your investment and retirement goals. An annuity can provide you with a steady, consistent income that’s better than other retirement products. Most annuities last for your lifetime, so you don't outlive your savings.

If you’re planning to include annuities in your financial strategy, it’s important to know the most common mistakes that you need to avoid. Many people often make big annuity mistakes, which ends up being their worst financial decision. This is the reason why annuities have gotten a bad rap in the past. With that in mind, here’s a look at six mistakes to avoid when purchasing annuities.

Choosing the Wrong Annuity

Similar to insurance, there are different annuities: immediate, deferred, fixed, and variable annuities. Different annuities have different fees, features, and degrees of risk. With each choice comes a set of pros and cons, so choosing the right annuity is crucial.

For risk-averse individuals, investing in variable annuities is a huge mistake. These annuities are appropriate for people who can cope with market fluctuations. If you’re a conservative investor, fixed-rate annuities offer stability and a guaranteed interest rate.

When shopping for annuities, know the target audience for each type. Learn as much as you can about your choices to avoid losing much of your money.

Choosing the Wrong Insurance Provider

Annuities are typically purchased from insurance providers. Since this is considered a long-term investment, you need to get annuities from reliable companies. Choose insurance providers with a solid financial strength rating of “A” or better. These A-rated insurers are financially stable and can fulfill annuity obligations to their clients. Otherwise, you’ll end up getting lower returns on your annuity.

Investing Too Much Money

Like any other investment, you should not put all your eggs in one basket. Annuities are a great source of guaranteed lifetime income, but they come with inflation risks. They also offer limited liquidity, which means you have limited access to your funds. 

As a general rule of thumb, you can allocate 5% to 20% of your assets to annuities. This allows you to spread your wealth and reduce the risk of loss. Instead of putting too much into annuities, diversify your portfolio by investing in a mix of stocks, bonds, and real estate.

Not Understanding How Annuities Work

Annuities are a complex topic that you might not be familiar with. Some types of annuities are straightforward while others are hard to understand. If you don’t understand it, don’t invest your money in it. 

Buying annuities without understanding how they work can only lead to financial struggles. Other potential consequences include missed investment opportunities and capital loss. 

To get up to speed with the ins and outs of annuities, an insurance agent can help. Professional agents are knowledgeable when it comes to the intricacies of annuities and other financial products. They can help you evaluate your options and guide you as you make an informed decision.

Not Paying Attention to Fees

Just like other investment products, annuities come with administrative fees and surrender charges. Some types of annuities like variable annuities have high fees. These fees and charges might lead to diminished investment returns over time. 

Before you purchase annuities, pay close attention to the fees associated with it. Focusing on potential returns without considering the associated costs is not a good practice. Carefully review the fine print and compare fees across different insurance providers. 

Failing to Shop Around

The only way to find a suitable annuity for you is to shop around. We recommend comparing annuity rates and payout options from different providers. Evaluate at least three insurance providers to make sure you’re getting the best deal. As much as possible, look for an insurance company with the most competitive rates. If you fail to shop around, you may miss out on finding annuities with higher returns and more favorable terms.

The Bottom Line

Annuities can be confusing, but having an insurance agent by your side can make all the difference. At Local Retirement Group, we are committed to helping you achieve your retirement goals. By utilizing our industry knowledge and expertise, we simplify annuities and make them more accessible for you. Our goal is to provide annuity products that fit best with your financial goals. Don’t hesitate to call us today for more details.