Because everyone’s financial needs differ, there isn’t just one single best time for investors or retirees to buy an annuity. But there are some ways that you as an individual (along with your spouse, if applicable) can narrow down the right time for YOU to buy one of these flexible and versatile financial vehicles.
Why Should You Consider Buying an Annuity?
Over the past decade or so, annuities have become more flexible in terms of the benefits they offer and the ability to customize them to more closely fit your needs. Because of that, they can offer a long list of benefits, both before and after you retire.
Some of the top reasons for purchasing an annuity can include:
- Enhancing tax-deferred savings (even if you have “maxed out” your annual contributions to an IRA and/or employer-sponsored retirement plan)
- Lifetime income that will continue to flow in during any type of market environment for yourself and possibly even your spouse for the remainder of his or her lifetime, too
- Leaving a legacy through the annuity’s death benefit
- Penalty-free withdrawals for terminal illness, hospitalization, and/or long-term care expenses
- Avoiding probate, which allows the assets to go straight to your beneficiary
(*Note that not all annuities may offer all of these features, so it is important to shop around for an annuity that includes the benefits you want).
Steps for Purchasing an Annuity
Annuities are considered long-term financial vehicles. So, before you make a commitment to buy an annuity, there are some steps that are recommended. These include the following:
- Determining your current and future financial needs. For some people, tax-advantaged growth is the key motivator for considering an annuity. Others are interested in buying an annuity so that they can start to receive an income stream right away.
- Researching and comparing annuities that meet your objectives. Just like buying any other “high ticket” item, comparing different annuities is a must. That way, you can take a look at the benefits you can attain, as well as any charges and fees that you may incur.
- Taking a close look at the insurance company (or companies) that you’re considering buying the annuity through. Annuities are an insurance contract. So, if you plan to rely on the annuity throughout your retirement for income, you will want to make sure that the underlying insurance company is strong and stable financially, and that they have a good reputation for paying out their claims to policyholders. You can typically find this information by checking the insurer’s ratings from A.M. Best, Standard & Poor’s, Fitch, and/or Moody’s.
- Filling out an annuity purchase application. Many insurance companies will allow you to download a purchase application from their website. You should be cautioned, though, that going this route on your own could lead to delays in processing your annuity – especially if there is any missing information. So, it is recommended that you go through this paperwork with an annuity or retirement income specialist.
- Funding the annuity. Different types of annuities will have different funding options. For instance, immediate annuities (the kind that pays out income right away), will typically allow for just one lump sum contribution. These funds could come from your personal savings and/or from an IRA or employer-sponsored retirement plan. Deferred annuities, however, will usually allow one or more contributions to be made over time.
- Reviewing the annuity contract once it has been issued (and returning it within the free look period if you determine that you don’t want to keep it). Annuity contracts have a “free look” provision whereby you have a set number of days to return the annuity and receive a full refund. In many states, the free look period for annuities is 30 days. However, this time frame can range from 10 to 30 days in length.
Are You Ready to Buy an Annuity?
If you’re ready to buy an annuity and you still have questions or concerns, feel free to contact us and chat with one of our annuity specialists. At Annuity Gator, it is our primary focus to educate consumers (as well as financial advisors) about how annuities work, and how to choose an annuity for your specific needs.