How to Find the Best Rates on Annuities

Annuities are contracts sold by insurance companies to guarantee a steady stream of retirement income to the purchaser.  They can be a variable annuity, which means that they are invested in the stock market and the rate of return is not guaranteed.  They can be a fixed rate annuity which means that they are invested with a fixed rate of return for a set period of time.  This article will talk more about the fixed rate annuity.

So we will discuss how to find the best rates on annuities in the current marketplace.  Because of the Internet, you can now search for the best rates online.  This may be a daunting task to say the least though.  There are so many different companies offering annuities that it may be difficult to select the best one.

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Guidelines on How to Find the Best Rates on Annuities

When you are online type fixed annuity rates into your search bar.  You will get a number of returns that will show you different rates from various companies.  Make a list of the rates and the companies.  You will obviously think that you should just choice the highest rate.  This is not necessarily true. 

Once you have selected some of the top rates offered on fixed annuities, you will need to go to the specific company’s websites and do some further research.  Many companies offer a high teaser rate for the first year of your contract.  However, that rate is not guaranteed for the duration of the contract.

Here’s an example:  Company A offers a 4% fixed annuity.  You look further and find that this is a 7 year contract and the 4% is guaranteed only for the first year.  Year two is guaranteed only at 2%.  Years three through seven are only guaranteed at 1.5%.  This means that your guaranteed rate for the duration of the contract is 1.925% rather than 4%.  The 4% is only for the first year. 

If you purchase this contract and interest rates go down or stay at the same rate for seven years, you will not get a 4% return.  If rates go up you may receive a higher return than 1.925% but you have no guarantee of getting higher.

Other Considerations on How to Find the Best Rates on Annuities

If you are near retirement age now or just a couple of years away, you will want to not only look for the best rates on annuities but look for the best rates that give you access to your money.  You may find a great 5 year interest rate but in two years when you retire, you may be restricted to the amount you can withdraw during the guarantee period. 

Some annuity companies will give you a 3% interest rate for five years, which is very good in the current market but you can only withdraw the interest earned during the five year period.  If you invested $100,000 and retired in two years, you can only take out $6000 in your first year of retirement, and $3000 per year for each of the next three years. 

If instead you have an annuity paying you a guarantee of 2.5%, that allows withdrawals of up to 10% a year after retirement you would be able to take annual withdrawals of $10,500 in your first year of retirement, and $9,733 in the second year and so on.  In other words you would have more access to your money with the second option than with the first.  Selecting the best rate on an annuity, you need to take all things into consideration.

Don't Just Shop, Implement a Solid Retirement Strategy

Purchasing an annuity is a big decision. Online research is a good start, but prudent investors should discuss all their options and risks with an independent financial advisor. Request a free, no-obligation consultation today, along with a report of current rates on brand-name annuities.

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Mistakes to Avoid on Purchasing Fixed Annuities

Most insurance companies have dollar points at which they will give higher rates on a fixed annuity.  If you have $100,000 to invest in a fixed annuity, you may think it is best to divide the money up between two different companies. However, if you invest $50,000 in two companies you will likely get a lower rate than if you invested the whole $100,000 with the same company.  For instance, a company with a fixed rate of 2% for 5 years may offer 2.25% for five years on 100,000 and only 2% on anything under $100,000.  So, you are not getting the most for your money.

So, when looking for the best fixed annuity rates be sure that you look at the whole picture rather than the stated rate.  You may miss out on better rates if you do.  You should make sure that you understand all the special circumstances in your contract before you make a purchase.

Check the Insurance Companies Credit Rating

Before you invest in a fixed rate annuity you need to check the insurance company’s credit rating.  Even though most people never have a problem with fixed annuities in the current economic environment doing your homework may pay off big time down the road.  Fixed annuity rates and principal guarantees are tied directly to the ability of the insurance company to pay the rate and principal at maturity. 

As mentioned, most people don’t ever have to worry about the credit quality of their insurance company but times are changing.  You need to make sure that the company you are getting your good interest rates with will be able to actually pay that rate and return your principal investment at maturity.  You can check with any of the online insurance company rating company’s to find this information.  You can look at Moody’s rating service or S & P’s rating service just to name two. 

Conclusion

When considering how to find the best rates on annuities it is fairly easy to look only for percentage rates.  However, you need to consider several other things before you simply accept the rates offered.  You need to make sure that these are the best rates for your particular situation and that the rates last for the duration of your contract and are not just teaser rates.  Finally, if the insurance company is financially solid and offers the best rate for your needs, then this is the company to choose. 

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