Let’s suppose you have already decided you would like to purchase an annuity. So how do you pick the right annuity? What should you be looking for and how do you know the annuity that you are looking at is the best option available to you within the many products available in today’s annuity marketplace?
The key to this is you have to determine the financial objective you are trying to achieve in your overall retirement plan. Let’s summarize the common retirement needs everyone faces first, so you can make sure you’re purchasing an annuity for the right reason.
We can break annuities down into the following basic categories:
Long Term Care
Most annuities in today’s marketplace are designed to fulfill one or more of these objectives. For example an annuity that is primarily designed for income, usually will not be as good an accumulation product compared to annuity that is designed for accumulation. Let’s take a minute and go through each category to further clarify our discussion.
Often an annuity will be purchased with the goal of providing a lifetime income for one or both spouses. Considering how low interest rates are today for bonds and CD’s, and the risk of being in the stock market, it makes sense to use an annuity for this purpose. Today we are seeing many products that are offering Guaranteed Lifetime Withdrawal Benefit features which guarantees an income stream throughout the entire life (lives) of the recipient(s), even if the original deposit is fully depleted and they are still living. (See article on income riders for a full discussion). In some cases, you may be better off just using a good accumulation annuity instead of purchasing an income rider and still be able to provide a lifetime income.
Often annuities are used to grow the account as much as possible while still maintaining the safety an annuity provides. A good Index Annuity is where you want to look for the best growth with safety, and the account value can be used for income distributions.
Some annuities are designed to provide an additional death benefit, usually in the form of a death benefit rider, or an income rider that accumulates at a higher rate than the account value. It is surprising just how much some annuities will guarantee as a death benefit payout in today’s low interest rate environment.
Long Term Care
There are annuity products that will pay additional benefits if an owner or spouse, needs home care, assisted living care, or nursing home care. Usually this benefit is associated with a Guaranteed Withdrawal Benefit Rider (GLWB), where the payments will increase if care is needed. There are many variations among products as far as how much they will pay, the length of time they will pay, and the level of care such as nursing home only, or assisted living care and home care as well. Some annuity contracts are designed only for long term care, and usually will pay higher amounts than products that use the GLWB rider. (See article on Long Term Care).
So How Do You Choose the Best Annuity for You?
Take the time to access your needs and determine if income now or in the future is needed. If income isn’t needed, and you simply want safe accumulation, take the time to shop for annuities with the highest earning potential. If this is money that you may never use and will most likely go to the next generation, consider an annuity that pays a higher death benefit. For that matter you also may want to explore a life insurance policy to see if that would be a better option than the annuity.
Have an annuity that you are looking at and would like an objective opinion on how it stacks up to the competition? Fill in the information below and we’ll give you nothing but the facts!