Avoid Overpaying for Lower Income—Compare These Key Points Before Buying an Annuity
Scenario
You’re considering an annuity to secure guaranteed lifetime income, grow money tax-deferred, or protect retirement savings. But annuity rates vary widely by type, company, and features. Knowing how to compare them can mean thousands of dollars more income—or less.
Compare Guaranteed Payouts for Lifetime Income
Key stat: Monthly income can vary by 10–30% between companies.
- Focus on quotes for the same premium amount and age
- Look at Guaranteed Lifetime Withdrawal Benefit (GLWB) values
- Don’t rely on general rate tables—they don’t account for riders or age differences
- Who Needs It: Retirees prioritizing predictable income
- Who Doesn’t: People using annuities only for accumulation
- Helpful Add-on: Use a GLWB annuity calculator to find the highest payouts.
Evaluate Multi-Year Guaranteed Annuity (MYGA) Rates
Key stat: MYGAs offer 3.5–6%+ fixed interest for a set term.
- Great for predictable, no-risk growth
- Compare interest rate, surrender period, and carrier rating
- Watch out for withdrawal penalties before the term ends
- Who Needs It: Pre-retirees seeking short-term fixed growth
- Who Doesn’t: Investors needing high liquidity or inflation protection
- Also Consider: A deferred income annuity for guaranteed payouts after growth.
Review Index Crediting Options on Fixed Index Annuities
Key stat: Caps and participation rates change annually and vary widely.
- Compare cap rates, participation rates, and indexing methods
- Choose companies with strong historical renewal rates
- Don’t chase past performance—it’s not guaranteed
- Who Needs It: Conservative investors seeking some growth potential
- Who Doesn’t: Those expecting stock market–level returns
- Helpful Add-on: Look for GLWB riders to combine growth and lifetime income.
Check Insurance Carrier Ratings
Key stat: Only buy from carriers rated A- or higher by AM Best.
- Better ratings = stronger claim-paying ability
- A-rated carriers may offer similar or better rates than lower-rated ones
- Don’t choose a higher rate from a B-rated company over long-term safety
- Who Needs It: Anyone concerned about income security
- Who Doesn’t: N/A – every annuity buyer should check ratings
- Helpful Add-on: Ask for ratings from AM Best, S&P, and Moody’s.
Match Surrender Periods to Your Needs
Key stat: Longer terms often pay more but reduce flexibility.
- Choose the shortest surrender period with a competitive rate
- Consider liquidity features like penalty-free withdrawals
- Don’t lock up money you may need sooner
- Who Needs It: Retirees who won’t need access to the principal
- Who Doesn’t: Anyone unsure about long-term access needs
- Also Consider: Short-term annuities if flexibility is a concern.
Compare Annuity Payout Options and Death Benefits
Key stat: Joint vs. single life options can reduce payouts by 10–20%.
- Choose joint payouts if you want income for a spouse
- Look for contracts with Return of Premium or lump-sum death benefits
- Don’t assume all annuities return unused funds
- Who Needs It: Married couples or those wanting a legacy
- Who Doesn’t: Single buyers with no beneficiaries
- Helpful Add-on: Riders can protect beneficiaries even after income starts.
Get Side-by-Side Quotes From Multiple Companies
Key stat: The highest-paying annuity can outperform the lowest by hundreds per month.
- Use an annuity broker who compares 25+ companies
- Request quotes for your exact age, amount, and payout date
- Don’t rely on insurance company websites—they only show their own rates
- Who Needs It: Everyone shopping for an annuity
- Who Doesn’t: N/A – rate shopping is essential for all
- Helpful Tool: income annuity comparison platforms.
Final Tip: Don’t Skip Insurance and Annuity Pairing
Pairing life insurance or long-term care insurance with annuities can cover health and family risks, so you don’t have to reduce your income stream for unexpected costs.
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