How Do You Buy an Annuity?

Shawn Plummer

CEO, The Annuity Expert

When buying an annuity, there are many things to consider. How much money do you want to receive each month? What is the best way to invest my money? How long do I have until I need the money? These are just a few questions you will need to answer before purchasing an annuity. This guide will discuss everything you need to know about buying an annuity. In addition, we will cover topics such as: how annuities work, what types of annuities are available, and how to choose the right one for you. So, whether you are just starting your research or are ready to buy an annuity today, this guide has everything you need to know.

How To Buy An Annuity

There are a few things to keep in mind when purchasing an annuity. First, you need to decide what type of annuity purchase you want. There are two basic types: fixed and variable annuities. With fixed annuities, you know precisely how much lifetime income you will receive each month for the rest of your life. A variable annuity, on the other hand, does not provide a guaranteed income stream. Instead, your annuity payments will fluctuate based on the performance of the underlying investment.

Next, you need to choose an insurance company. Again, it is vital to select a company that is financially sound and has a good reputation. You can check the ratings of different companies by contacting independent rating organizations such as Standard & Poors or Moody’s.

Finally, deciding how you want to receive income payments would be best. You can receive them all at once (lump sum) or spread them out over time (annuitize). If you choose to annuitize, you will need to decide how long you want annuity payments to last – for example, ten years, 20 years, or for life. Once you have considered all these factors, you will be ready to purchase an annuity that best meets your needs.

Follow these steps to purchase an annuity successfully:

Steps For Buying An Annuity

  1. Assess Your Needs and Set A Goal: A clear financial plan is key to maintaining your lifestyle. Work with a financial professional to help you assess your current needs and set long-term goals. This will ensure you have the resources you need now and in the future.
  2. Research Annuities: With so many annuities on the market, it can be tough to decide which is best for you. First, consider what’s most important to you in an annuity — income or growth. From there, research illustration documents that come with each option. An illustration is a presentation that shows all the guaranteed and non-guaranteed elements of an annuity contract over time.
  3. Find A Reputable Insurance Company: It’s essential that you locate an A-rated or better annuity provider to get a reasonable, competitive rate. You can discover reputable providers by looking up ratings from well-known agencies such as A.M. Best, Standard & Poor’s, and Moody’s.
  4. Submit An Application: Double-check that it is “in good order before sending in your insurance application.” Good order means that the application is filled out completely and accurately. If you don’t follow this advice, processing times can lengthen, affecting whether the quoted interest rate will be honored by the insurance company. The insurer’s suitability team makes the final determination of who qualifies for their services.
  5. Fund The Annuity: Funding goes directly to the insurance company. You can fund annuity contracts with cash, roll over a 401(k), transfer an IRA or other retirement assets to a qualified annuity, or 1035 exchange for an annuity or life insurance policy for a nonqualified annuity.
  6. Make use of the free-look period: Almost all insurance companies enable purchasers 10 to 30 days from the start date in the contract to nullify the annuity and receive their money back. If your agreement doesn’t show a free-look duration, request that the agent explains why it isn’t included.
  7. Step #6: Manage The Annuity: You can manage the annuity similarly to a bank account by setting up a profile with the insurance company. Annuity owners can track progress, request withdrawals, change beneficiaries, and request any claims.

Funding An Annuity

Most annuities require some minimum premium payment to get started. This initial investment provides the annuity funds used to make future payments (deferred income annuities).

There are a few different ways that people can go about funding their annuity premiums.

  • One option is to use cash. This could be money you have saved, the money you receive as a gift, or even money from selling a property.
  • Another option is to use a portion of your investment portfolio, such as stocks, bonds, or mutual funds.
  • The next option is transferring funds from a retirement plan like an individual retirement account (IRA) or 401(k).
  • Finally, some people take out a loan to fund their annuity purchases. While this may seem like a risky move, it can be quite beneficial if the interest rate on loan is lower than the rate of return on the annuity.

No matter your chosen method, you must ensure that you have enough money to make all your future payments (if applicable).

Why Would I Buy An Annuity?

So, why do you buy an annuity? It’s a good idea to consider buying an annuity if you want to:

  • Generate a guaranteed income stream: If you’re concerned about outliving your savings or having a stable source of income during retirement, an annuity can provide a guaranteed income stream for a set period. This can give you peace of mind and help you plan for your future.
  • Diversify your investment portfolio: Annuities can be an excellent way to diversify your investment portfolio, particularly if you’re heavily invested in stocks or other risky assets. In addition, annuities offer the potential for a guaranteed stream of income, which can provide some balance to your overall investment strategy.
  • Defer taxes: If you have a large sum of money that you’d like to use for retirement, a deferred annuity can allow you to save and invest the money on a tax-deferred basis. This can potentially help your money grow faster over time.
  • Leave a legacy: If you want to leave a financial legacy for your loved ones, you may be able to use an annuity to provide a guaranteed stream of income for your beneficiaries.

How Do I Choose the Best Annuity for Me?

CD-Like Annuity

For annuity buyers seeking a fixed interest rate, better than CD’s interest rates, a fixed annuity would fit you.

Stock-Market Growth With Principal Protection

A fixed-indexed annuity will be a good idea if you want to buy an annuity with better upside potential than a fixed annuity’s interest rate. Fixed index annuities are a type of fixed annuity that earns interest based on the performance of an external index such as the S&P 500. In addition, the principal is protected from stock market crashes because the annuity is not directly invested in the stock market.

All The Upside Potential

Everyone knows that investing involves risk. Therefore, a variable annuity would be an excellent fit for annuity buyers who are comfortable with the risk of losing money in the account value but have all the upside potential from the market.

A Retirement Income For Life

Consumers wanting a predictable, guaranteed retirement income for the rest of their life should look at a deferred annuity with an income rider.

Long-Term Care Insurance

A long-term care annuity would be a good idea for individuals seeking to plan long-term care who want to pay a fraction of the cost.

Where To Buy An Annuity.

There are a few different places where you can buy an annuity. The most common place is from an insurance company. You can also get an annuity from some banks and the government. Buying an annuity from an insurance company is usually the best choice because they have the most experience. However, you may be able to get a better deal somewhere else. You should shop around and compare prices before you buy an annuity.

Related Reading: Where To Buy An Annuity

Is Buying An Annuity a Good Idea?

There are several advantages to buying an annuity.

  • One of the most appealing features of annuities is that they provide a stream of retirement income that is not subject to market volatility. This means that regardless of how the stock market performs, annuity holders can rest assured that they will have a steady source of guaranteed income in retirement.
  • In addition, annuities offer tax-deferred growth (deferred annuity), meaning any earnings on the annuity are not subject to taxes until they are withdrawn. This can result in significant tax savings over time.
  • Finally, annuities offer death benefits, which means that their beneficiaries will receive a payout in the event of the annuity holder’s death.

For these reasons, annuities can be valuable to any retirement portfolio.

At What Age Should I Buy An Annuity?

There is no one-size-fits-all answer to this question. It depends on factors such as age, health, and retirement goals. However, the earlier, the better for deferred annuities, as time is the primary factor for growth. On the other hand, if you are closer to retirement, you may want to consider an immediate annuity, which can provide guaranteed income starting immediately.

What Is A Good Annuity To Invest In?

There are many factors to consider when choosing an annuity, such as age, retirement goals, and risk tolerance. However, one of the most important factors is the type of annuity. There are two main types of annuities: fixed and variable.

  • Fixed Annuities: Fixed annuities offer a guaranteed rate of return, which means you will know precisely how much-fixed income you will receive each month.
  • Variable Annuities: Variable annuities offer the potential for higher returns but come with more risk.
  • Fixed Index Annuities: Fixed Indexed Annuities offer a guaranteed rate of return and the potential for higher returns while protecting your investment from stock market volatility.
  • Immediate Annuities: Immediate annuities provide a guaranteed income stream within 30 days of issuing the contract.

Before making any decisions, it is crucial to contact us to see what type of annuity products would be best for you.

Why You Should Never Buy An Annuity. 

An annuity is an insurance product that can be used as a retirement planning tool. The money you invest in a deferred annuity grows tax-deferred and is paid out as a lump sum or monthly payments, typically after you retire.

While annuities can sound like a good idea, there are several reasons why you should never buy one.

  • First, annuities can be expensive. The fees charged by the insurance company can eat up a significant portion of your investment, leaving you with less money than you would have if you had invested differently.
  • Second, annuities offer limited liquidity. Once you decide to purchase an annuity, your money is locked in for the duration of the annuity contract. You may be subject to hefty surrender charges if you cash in your money early.
  • Finally, annuities are complex products that can be difficult to understand. If you are not careful, you could make poor investment choices that will cost you dearly in the long run.

For these reasons, it is best to speak to an expert or avoid annuities altogether.

Bottom Line

We hope this guide provides you with the information you need to feel confident about buying an annuity. Our team of experts is always here to answer any questions and help you find the best product for your needs. So give us a call today to get started!

How To Buy An Annuity

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Frequently Asked Questions

Is buying an annuity a good idea?

The answer to this question depends on your circumstances. For example, annuities can be a good idea for people who want a steady income for life, a guaranteed rate of return, tax advantages, or protection from stock market volatility.

How do I purchase an annuity?

You can purchase an annuity through a financial institution, such as a bank, insurance company, or brokerage firm (like The Annuity Expert).

Should a 40-year-old buy an annuity?

There is no one-size-fits-all answer to this question. It depends on factors such as age, health, and retirement goals. However, the earlier you purchase an annuity for retirement, the longer it has to grow, providing a higher rate of return or guaranteed monthly income payment.

Related Reading

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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