Whether you’ve recently retired, are five years out, or have parents approaching retirement, an annuity can help build tax-deferred savings. Why’s that important? Because this money can be put towards healthcare, medical or living expenses.
But, the main reason why annuities are such an appealing retirement vehicle? They provide a guaranteed lifetime income. And, that should eliminate any fear of your outliving your money.
According to a Gallup poll, 85% of investors “strongly agree that it’s important to have a guaranteed income stream in retirement to supplement Social Security.” At the same time, “61% strongly or somewhat agree they are willing to give up access to some money in order to provide for a guaranteed retirement income stream,” adds Lydia Saad for Gallup.
But, wait a minute? What about pensions and Social Security?
Well, only around 35% of retirees have a pension. There’s also the fear that Social Security will run out. While unlikely, Social Security will only take you so far.
So, for retirees, an annuity is certainly worth considering. But, how can you find the right annuity for your retirement? Well, let’s help get you on your way in finding and purchasing annuities.
Who provides annuities?
Since an annuity is an insurance product, annuities are often issued by insurance companies. Essentially, it’s a contract between you and the insurance where you pay a premium. In return, you’ll receive regular payments for a specified time period.
Even though an insurer promises to make payments to you, you can also purchase annuities from;
Brokerage firms, known as wirehouses, such as Merrill Lynch and Morgan Stanley
Independent broker-dealers like Raymond James
Large banks, think J.P. Morgan or Bank of America
Mutual fund companies like Vanguard
Independent insurance agents and financial advisors
Just note that annuities are heavily regulated and must comply with state requirements. So, not just anyone off the street can sell you an annuity.
At the same time, annuities aren’t guaranteed by the federal government. As such, you need to do your due diligence when purchasing an annuity by considering the following factors;
High ratings from independent rating companies such as Standard & Poors or Moody’s
Positive online reviews
History and financial health
Minimal fees and administrative costs
How do you purchase an annuity?
If you’ve done your research and are ready to purchase an annuity, keep these steps in mind;
Determine your financial needs today and tomorrow.
If you’ve already maxed out retirement plans like your 401(k) and have the extra money, an annuity could be right for you. Also take into consideration your age, health care needs, current needs, and what your vision of retirement is.
Select the right annuity product.
Annuities can get complex because there are different types.
Immediate annuities will begin paying out not too long after making your initial payment. It’s a great option if you’ve already retired or closely approaching retirement age.
Deferred annuities are tax-deferred meaning that you’ll receive your money at a later date after it’s grown.
Select the one that best fits into your retirement plan. And, also note that you also have the choice between a low-risk fixed option or a variable that is dependant on the market.
Select your provider.
You want to purchase your annuity from a legit and trustworthy entity. Ideally, you want to make sure that they’re stable and are rated highly.
Review your contract.
Carefully go over the contract before committing to anything. If you have any questions ask or have someone who you trust, like your financial advisor, go over the details with you.
Complete the application.
If you’ve done the legwork, it should only take a couple of minutes to fill out the application. Just make sure that you fill out all the necessary fields and determine how much you want to deposit each month. Not sure? An annuity calculator can help you figure this out.
Finally, you can purchase your annuity with cash, brokerage account assets, or retirement account funds. And, don’t forget to customize your annuities, like when you want to receive your payments and your beneficiaries.
The five best annuities for retirees.
Because the annuity market is heavily competitive, you have more than enough options when selecting an annuity company or provider. So, we’ve decided to make it easier on you by suggesting the following five annuities best suited for retirees.
Founded in 2015, Due’s goal is to ensure that every retiree has enough money coming in each month to live comfortably. Best of all? Due has taken a lot of the confusion and complexity out of annuities.
In under ten minutes, you can set up your retirement account. Once you do, Due will invest every dollar your deposit into a Charles Schwab account. From there, it’s managed by two of the top and most reputable investment firms in the nation Blackstone (NYSE: BX) and ATHOS Private Wealth.
You can contribute however much you want to this fixed annuity. You’ll also earn a fixed 3% interest on your money. But, if you need to withdraw your money for whatever reason, you can cash it out at any time.
First opening in 1946, Fidelity is considered an annuity leader. And, for good reason. The company offers six different annuities based on retirement income, asset protection, and income generation.
Fidelity Personal Retirement Annuity: $10,000+ investment
New York Life Premier Variable Annuity-P Series with Investment Preservation Rider-P Series: $25,000+ investment
Deferred fixed annuities: $5,000+ investment
Deferred income annuities: $10,000+ investment
New York Life Clear Income Fixed Annuity-FP Series: $50,000+ minimum
Immediate fixed income annuities: $10,000+ minimum
Overall, these accounts offer low fees, and the firm has a solid A+ AM Best rating. Furthermore, Fidelity is known for its outstanding customer service that includes personalized consulting.
3. Mass Mutual
If you want to work with an experienced annuity provider, then look no further. Founded in 1857, Mass Mutual has over 170 years of annuity experience. The insurance company has also maintained an A++ rating from AM Best.
Mass Mutual does offer five types of annuities;
Deferred Fixed Annuity
Fixed Index Annuity
Immediate Income Annuity
Deferred Income Annuity
But what really makes Mass Mutual stand out is its RetireEase product. It’s a flexible premium deferred income annuity. It’s a low entry, doesn’t have annual contract fees, and lets you monthly, quarterly, semi-annual, or annual payments.
Another experienced annuity leader is New York Life. Founded in the mid-1800s by offering company life insurance policies. Today, however, many seniors are familiar with the company due to its long-standing partnership with AARP.
Throughout New York Life’s rich 175-year history, the company has expanded to offer a wide range of financial products and services, which includes annuities. The company has excelled at this so much that it’s earned an A++ rating from both AM Best and Standard & Poor’s –primarily for the financial security of its annuities.
New York Life also offers several different annuity products including variable, fixed, and income. What a lot of people also like most about New York Life is that you can secure an annuity for as little as $5,000.
Unlike other annuity companies, AgeUp is designed specifically for seniors. It’s the perfect vehicle if you’re concerned about outliving your retirement savings if you’re healthy or approaching your 90’s. And, to give you some peace of mind, it’s also backed by Mass Mutual.
Here’s how it works. If you’re 65 and contribute just $65 a month and your target age is 91, then you’ll receive $416/month. That may not sound like much. But. it’s a decent supplemental income if you already have other retirement income streams like a 401(k), IRA, and Social Security.