Finding The Best Annuity
The most important step in finding the best annuity is understanding why you'd want one in the first place. Annuities are good investments, but not ideal for everyone. Annuities are designed for retirement saving and involve long terms and disincentives for early withdrawals, similar to a 401(k). Understanding this design and investing for the RIGHT reason -- retirement income or savings -- is the first and most crucial step towards finding the best annuity.
Choosing the Right Annuity Type
What is your investment goal? Immediate income? An inflation hedge? To build up a solid savings for early retirement? These are all factors that affect the type of annuity you should be looking at. A fixed annuity is ideal for those already retired and looking to cover daily expense, or free up some spending money. Variable annuities are ideal for pre-retirees who want faster growth and don't mind managing a portfolio from time-to-time. Equity-index annuities fall somewhere in the middle, providing moderate growth with equity investment.
Determining which of these types of annuity is better suited to your finacial goals is the second important step to finding the best annuity. Many investors fail at this step. They don't consciously consider their risk tolerance or financial need requirements. If you plan to retire at 65, how much money per money will you need to live? How much money will you receive from social secruity? These and other factors should be taken into account before commiting to any particular annuity contract.
Comparing Annuity Offers
Having identified an annuity type in line with your risk tolerance, you need to examine and compare multiple annuity contracts. When comparing, consider not only the interest rate, but other important factors like length of the contract term, the rating and financial security of the insurance provider, withdrawal schedules, management fees, and other contract sticking points.
Be sure to get a solid sampling of various contracts from top annuity providers. Look at contracts from as many providers as possible, but try to settle on AA rated insurer like Metlife or Prudential. Although each insurer will have its own twist on a fixed or variable rate annuity, there's little incentive to do business with lesser rated providers, as interest rates don't depend on the insurer's financial stability.
Compare costs (including hidden fees) versus returns. Compare providers themselves in terms of financial viability, reputation and track record – and ensure that you opt for the very best. Finally keep in mind that an annuity is a legal contract, so consider the legal terms and opt for the most legally-friendly annuity.
For more information on fixed, variable, or equity-indexed annuities, be sure to browse our annuity-specific guides.
To find the best annuity you must first identify your investment goals, then choose an appropriate type of annuity (fixed, variable, equity-indexed), compare rates and contracts from brand name providers, and finally recognize the potential pitfalls of your annuity type. Doing this will reduce your risk and ultimately save you more money, allowing you to find a solid retirement savings vehicle.
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