If you are considering purchasing an annuity to help aid your retirement plan, there are several things you should consider. The following are some things to think about before choosing to move forward with an annuity:
How the Annuity is Credited
There are several different ways that an annuity is credited, so be sure to choose one that will best fit your needs. Monthly average crediting provides an even return when the year is somewhat volatile. This will prevent any losses of gains during a bad investment year. Uncapped crediting methods do not limit your gains by a certain maximum interest rate. Instead, the company servicing your annuity will deduct a fee that will reduce the interest you made, but will not limit what you have earned. Blended allocation provides portions of the interest that is based on both the fixed return and the index return.
Typically, annuities will offer a death benefit to your beneficiary. If you are leaving the bulk of your wealth in an annuity, choose one that has an enhanced death benefit. This can include those with a guaranteed interest rate, stacking interest, or paying out the income account value.
A great component of an annuity is the ability to add an income rider. This will provide a lifetime income that is guaranteed. There may be a minimum waiting period before you can begin adding income, but it is an option if your employer does not provide a matching opportunity or pension.
The rates and terms for annuities will vary, but they all have the ability to provide a substantial income stream for your retirement. Pay attention to the fees involved in income riders, as some will be free. Others will charge a percentage based on the value of the account.
There will almost always be a period of time where you will not be able to withdraw the money when you want, but you have a better opportunity to gain access to the liquidity faster than other investment options. You can check your provider for the different options, but you typically will be able to withdraw a small percentage of money from the account each year if you need cash on hand.
Like most investment options, annuities can be confusing. However, investing in an annuity is a great way to diversify your portfolio in order to have enough money to last you into retirement. Meet with your financial planner to determine which type will be best for your needs.