Understanding the ins and outs of annuities can require near rocket-science abilities.
Truth is they are simple in concept but complex in structure.
With over 35 major annuity providers and more than 1500 different annuity products on the market, knowing how to choose the right one can make one want to give up and possibly miss out on one of the most powerful wealth creation strategies ever invented.
Patience and determination are a must, but some good guidance can also help.
Here are EIGHT KEYS to understanding how to find the correct annuity and sort through all of the different options.
You Need a Good Advisor, You Will Never Understand It All - the first thing to recognize is that you will never fully comprehend all of the annuity options available.
Find a good licensed agent or advisor that can help.
After all, they get paid by the insurance carriers so use their time and energy instead of your own.
Good agents have software programs developed by agencies and insurance companies that can help narrow down the best annuities that could meet your needs and goals.
Trusted professionals can be easily spotted but try and work with one that is focused solely on the annuity market.
Know Ahead of Time the Type of Annuity You Want - When choosing what type of annuity to buy you must consider the following factors - your age, income needs, and tolerance to lose money.
There are three types of annuities to consider.
Variable Annuities are invested directly into the market and usually have higher fees and carry a high risk of loss to principle balance though some provide income guarantees.
Fixed Annuities are like high powered CDs because they simply provide a guaranteed fixed rate each year and annuitization or income options.
Fixed Indexed Annuities are invested into various market indexes and provide strong return upsides, guaranteed income riders, low fees and no risk to principle balance.
Find an Annuity Specialist, Avoid Generic Sellers - Nearly every bank or financial organization has some type of annuity they can offer.
However, beware of generic annuities and sellers that have limited annuity contracts.
Some sellers have "production requirements" or get special incentives or bonuses for pushing certain annuities regardless of what is best for the client.
Your best bet is to deal with an annuity specialist - someone that's sole focus is annuities, is an independent seller, has multiple annuity contracts and can find the best product to meet your needs regardless of commissions or special incentives.
Be Clear About You Want - Annuities are designed to protect your principle balance, obtain respectable growth and provide income for life if desired.
Each annuity illustration is customized based on your specific needs.
In order to know which product is best suited for your particular needs your agent will likely spend time asking you about your personal goals, financial outlook and income needs.
You can help the process by knowing your tolerance for loss, the income amount you will need and when you would like to start receiving that income stream or if you will just desire to annuitize your account after the annuity matures and do something else with your balance.
Focus on Top-Rated, Large Providers - To ensure your money is as safe as possible, make sure to research the strength and size of the company offering the annuity.
Ratings can be looked up at A.
M.
Best website.
A-rated providers are the safest but you should also know their company history and the asset base being managed.
A small carrier can have a high rating but could still be risky due to their lack of size.
Remember, it is your retirement money.
You want it safe as possible and getting a little more in returns or promises with a smaller, more unknown company is not worth the risk to your livelihood.
Avoid the Big Bonus, Big Promises Trap - Some annuity providers offer incentive bonuses to new clients in order to entice them to buy and in many cases this can be a good deal for the client.
However, the general rule of thumb to consider is the larger the initial bonus, the weaker the annuity tends to be in the long run.
Many times these annuities are sold by smaller carriers trying to get new business with such enticements.
In other cases they may promise bigger returns or guarantees.
They also tend to pay agents higher commissions for selling these types of annuities.
Just make sure to read the small print and clearly understand fees, surrender charges/periods, and the length of the annuity because in most cases those will be more costly.
Know What Happens to Your Cash - One of the most important aspects to deciding upon which annuity to purchase is to understand clearly what happens to your actual principle investment amount (cash) which is also known as the "accumulation account".
Most annuities in the market place today consist of both an "accumulation account" and an "income account".
Some sellers highlight "guarantee rates" of 6-7% but fail to clearly explain that this rate of growth is not on your accumulation value but only on your income account value.
If you decide to walk away from the table years later, you will only be able to take your cash value with you.
Income account values can only be taken out as lifetime income payments.
If your intention is solely to turn your cash into a guaranteed income stream for life then your cash account doesn't matter as much because it will be used to fuel the growth of the income account value.
If you are undecided about what you intend to do in 7-10 years, make sure the annuity you select protects your cash investment as much as possible so that you have options and flexibility.
Don't Get Trapped by Paralysis of Analysis - It can be easy to over-think the annuity purchasing process.
As long as you are working with a respected, knowledgeable, trusted agent, together you should be able to quickly find an annuity that can meet your needs.
Make sure the company is stable, high rated, your fees and surrender periods are understood, and that the details of your plan of action are clear and laid out properly in the contract.
Keep in mind you also have a look-back period to determine if you want to keep the annuity or not as well.
Nothing could be worse for you or your family in choosing to do nothing out of fear.
Remember, time is the most valuable asset you have and once it is gone, you cannot get it back.
Truth is they are simple in concept but complex in structure.
With over 35 major annuity providers and more than 1500 different annuity products on the market, knowing how to choose the right one can make one want to give up and possibly miss out on one of the most powerful wealth creation strategies ever invented.
Patience and determination are a must, but some good guidance can also help.
Here are EIGHT KEYS to understanding how to find the correct annuity and sort through all of the different options.
You Need a Good Advisor, You Will Never Understand It All - the first thing to recognize is that you will never fully comprehend all of the annuity options available.
Find a good licensed agent or advisor that can help.
After all, they get paid by the insurance carriers so use their time and energy instead of your own.
Good agents have software programs developed by agencies and insurance companies that can help narrow down the best annuities that could meet your needs and goals.
Trusted professionals can be easily spotted but try and work with one that is focused solely on the annuity market.
Know Ahead of Time the Type of Annuity You Want - When choosing what type of annuity to buy you must consider the following factors - your age, income needs, and tolerance to lose money.
There are three types of annuities to consider.
Variable Annuities are invested directly into the market and usually have higher fees and carry a high risk of loss to principle balance though some provide income guarantees.
Fixed Annuities are like high powered CDs because they simply provide a guaranteed fixed rate each year and annuitization or income options.
Fixed Indexed Annuities are invested into various market indexes and provide strong return upsides, guaranteed income riders, low fees and no risk to principle balance.
Find an Annuity Specialist, Avoid Generic Sellers - Nearly every bank or financial organization has some type of annuity they can offer.
However, beware of generic annuities and sellers that have limited annuity contracts.
Some sellers have "production requirements" or get special incentives or bonuses for pushing certain annuities regardless of what is best for the client.
Your best bet is to deal with an annuity specialist - someone that's sole focus is annuities, is an independent seller, has multiple annuity contracts and can find the best product to meet your needs regardless of commissions or special incentives.
Be Clear About You Want - Annuities are designed to protect your principle balance, obtain respectable growth and provide income for life if desired.
Each annuity illustration is customized based on your specific needs.
In order to know which product is best suited for your particular needs your agent will likely spend time asking you about your personal goals, financial outlook and income needs.
You can help the process by knowing your tolerance for loss, the income amount you will need and when you would like to start receiving that income stream or if you will just desire to annuitize your account after the annuity matures and do something else with your balance.
Focus on Top-Rated, Large Providers - To ensure your money is as safe as possible, make sure to research the strength and size of the company offering the annuity.
Ratings can be looked up at A.
M.
Best website.
A-rated providers are the safest but you should also know their company history and the asset base being managed.
A small carrier can have a high rating but could still be risky due to their lack of size.
Remember, it is your retirement money.
You want it safe as possible and getting a little more in returns or promises with a smaller, more unknown company is not worth the risk to your livelihood.
Avoid the Big Bonus, Big Promises Trap - Some annuity providers offer incentive bonuses to new clients in order to entice them to buy and in many cases this can be a good deal for the client.
However, the general rule of thumb to consider is the larger the initial bonus, the weaker the annuity tends to be in the long run.
Many times these annuities are sold by smaller carriers trying to get new business with such enticements.
In other cases they may promise bigger returns or guarantees.
They also tend to pay agents higher commissions for selling these types of annuities.
Just make sure to read the small print and clearly understand fees, surrender charges/periods, and the length of the annuity because in most cases those will be more costly.
Know What Happens to Your Cash - One of the most important aspects to deciding upon which annuity to purchase is to understand clearly what happens to your actual principle investment amount (cash) which is also known as the "accumulation account".
Most annuities in the market place today consist of both an "accumulation account" and an "income account".
Some sellers highlight "guarantee rates" of 6-7% but fail to clearly explain that this rate of growth is not on your accumulation value but only on your income account value.
If you decide to walk away from the table years later, you will only be able to take your cash value with you.
Income account values can only be taken out as lifetime income payments.
If your intention is solely to turn your cash into a guaranteed income stream for life then your cash account doesn't matter as much because it will be used to fuel the growth of the income account value.
If you are undecided about what you intend to do in 7-10 years, make sure the annuity you select protects your cash investment as much as possible so that you have options and flexibility.
Don't Get Trapped by Paralysis of Analysis - It can be easy to over-think the annuity purchasing process.
As long as you are working with a respected, knowledgeable, trusted agent, together you should be able to quickly find an annuity that can meet your needs.
Make sure the company is stable, high rated, your fees and surrender periods are understood, and that the details of your plan of action are clear and laid out properly in the contract.
Keep in mind you also have a look-back period to determine if you want to keep the annuity or not as well.
Nothing could be worse for you or your family in choosing to do nothing out of fear.
Remember, time is the most valuable asset you have and once it is gone, you cannot get it back.
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