The Guide To Shopping And Buying An Annuity

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

How To Buy An Annuity

To buy an annuity, follow these steps:

  1. Determine Your Needs: Decide what you want from the annuity – regular income, retirement security, etc.
  2. Research Annuity Types: Understand different types (fixed, variable, indexed) and choose the one that fits your goals.
  3. Find a Reputable Provider: Look for insurance companies or financial institutions with strong ratings and good reputations. Start by comparing payouts.
  4. Consult a Financial Advisor: Get professional advice to ensure the annuity suits your financial situation and goals. We can help you find the perfect annuity.
  5. Compare Offers: Look at different annuity contracts, fees, and terms from various providers.
  6. Read the Fine Print: Understand the terms, conditions, and any fees associated with the annuity.
  7. Make the Purchase: Once you’ve chosen, complete the application process and make your investment.

Remember, annuities can be complex and have long-term financial implications, so thorough research and professional advice are important.

The Ultimate Guide To Shopping And Buying An Annuity

How Much Does An Annuity Cost?

What Is the Minimum Annuity Investment?

The annuity cost varies by insurance company. Generally, the annuity minimum investment is typically $5,000 to open a new annuity contract. If you purchase a flexible-premium annuity, there may also be an additional minimum monthly contribution limit.

How Much Annuity Can I Buy?

The premium restriction for annuities is usually around $1,000,00 without a large case pre-approval. However, some companies will allow you to invest more than this amount. It all depends on the company you’re working with.

How Many Annuities Can You Have?

Every annuity company has a suitability team that reviews every application to ensure that the annuity suits the person applying. The team looks at things like age, liquid assets, and investment goals to ensure that the annuity makes sense for the applicant. Here are some general guidelines regarding having multiple annuities:

  • The applicant must have at least $85,000 in total household liquid assets. Homes, cars, and recreational vehicles do not count as liquid assets.
  • Annuity providers do not want owners to have more than 60% of their total household assets in annuities. This percentage can be higher with some providers.

It’s a “two-way street” when getting an annuity because the insurance company wants to feel as “warm and fuzzy” about selling you the annuity just as much as you feel about buying it!

Types of Annuities You Can Purchase:

  • Immediate Annuities: Start income payments immediately after a single lump sum payment.
  • Deferred Annuities: Allow future income and offer tax-deferred growth.
  • Fixed Annuities: Offering fixed interest and guaranteed income and safeguarding you against market downturns.
  • Variable Annuities: Have the potential for higher returns, but investing involves risk as they are linked to the performance of investment options chosen by the annuity buyer.
  • Indexed Annuities: Interest earned based on a stock market index, offering no risk of loss and potential better upside returns.
How To Invest In Annuities.

Choosing the Right Annuity:

The key to learning how to buy annuities is to focus on your financial goals, risk tolerance, and desired income. Seek advice from financial professionals or certified financial planners to weigh the annuity contracts and the features like death benefits, cash refund annuity options, and guaranteed lifetime withdrawal benefits.

  • Fixed-Income Annuity or Indexed Annuity: If you have a low-risk tolerance and prefer stable, guaranteed income.
  • Variable Annuity or Equity-Indexed Annuity: If you are comfortable with some level of risk for potentially higher returns.
  • Joint-Life Annuity or Long-Term Care Annuity: If you have specific needs such as ensuring income for a spouse or covering long-term care costs.
How To Buy An Annuity And Where Can I Buy An Annuity.

How to Start An Annuity

Here’s a simple guideline to set up and establish an annuity:

  1. Research Providers: Consider the claims-paying ability and the ratings of the annuity provider. Buy from “A-” or better annuity companies and avoid “B” rated insurance companies. We recommend S&P, Moody’s, and A.M. Best.
  2. Annuity Shopping: Compare similar products from different companies to make the best decision.
  3. Understand the Fees: Annuity fees, including annuity premiums and other associated charges, can impact the account value and should be reviewed diligently.
  4. Explore Contract Details: Scrutinize the annuity contract for features, income options, and any tax implications.
  5. Applying: Work with the annuity provider and broker to apply for and sign the annuity contract.
  6. Pay the premium: Transfer the money for the annuity premium payment after signing the contract. Payment can be made with cash, retirement funds, or from a brokerage account. Consider the tax consequences of each payment type before making the payment.
  7. Free-look Period: Review the annuity contract during the free-look period, which starts once the contract is issued. This period usually lasts 10 to 30 days, allowing cancellation and a refund. Ensure the contract meets all your objectives during this time.

Dos and Don’ts:

  • Do involve a financial advisor in your annuity shopping to align your investment with your overall financial planning. We can help you with this at no charge to you.
  • Don’t lose control over your money. Understanding the terms of your annuity contract ensures you are aware of the accessibility of your funds.
  • Do be mindful of the tax consequences. Non-qualified annuity payments are made with after-tax dollars, whereas qualified annuity payments have tax deferral benefits.
  • Don’t invest in annuities with high annuity fees that can erode your future income.
  • Avoid the risk of losing money in your annuity if you can’t afford to lose money in the market.

Where to Buy Annuities:

Invest in annuities through reliable insurance companies, reputable brokerage accounts, or mutual fund companies. Research extensively and consult an annuity broker (like The Annuity Expert) to avoid annuity companies with less-than-ideal reputations.

Additionally, most annuity products are terrible and do more harm than good, so using an independent expert like ourselves is critical when buying an annuity.

Tip: Avoid annuity websites that sell your information to financial advisors as leads. You could end up with the wrong annuity as they sell personal information to anyone.

We’re An Independent Annuity Broker

The Annuity Expert is an independent annuity broker dedicated to assisting clients in shopping for, comparing, and purchasing the best annuities tailored to their financial needs.

When Is The Best Time To Buy An Annuity?

It largely depends on individual retirement assets, financial needs, and market conditions. Deferred income annuities like QLAC (Qualified Longevity Annuity Contract) can be beneficial if purchased when the interest rates are high.

Annuity Buyers Tip: To get the most lifetime income from an annuity, buy it early. The longer you wait to start the income after buying, the more you’ll receive.

Questions to Ask When Purchasing Annuities:

  • What are the annuity payouts and income annuity options available?
  • What are the potential tax consequences of purchasing an annuity?
  • How will the annuity income affect my overall retirement income?
  • Is there a lifetime income rider or other additional features that suit my needs?

Who Should and Should Not Buy an Annuity?

Annuities can be advantageous for those seeking a reliable income stream and financial security in retirement. However, they may not be suitable for those who prioritize liquidity and control over their funds due to the restrictive nature of some annuity contracts.

How to Avoid An Annuity Scam When Shopping

Here’s a simplified list of tips to spot red flags when buying annuities:

  1. Avoid Pressure: Don’t rush. Avoid agents who push you to decide quickly.
  2. Deceptive Sales Tactics: Some sellers lie about the annuity details, hiding the bad parts.
  3. Question High Returns: Be skeptical if returns seem too high and guaranteed.
  4. Understand the Terms: Think twice if it’s too complex or unclear.
  5. Churning: Sellers trick people into changing their annuities to earn extra commissions, costing the buyer more.
  6. Bait And Switch Advertisements: Some ads make annuities sound scary, then offer other investments as “better” options.
  7. Watch for Hidden Fees: Ask about all costs and read the details.
  8. Check the Seller’s License: Ensure the agent is licensed in your state.
  9. Beware of Unsolicited Offers: Be cautious of random phone calls or emails.
  10. Get Everything in Writing: Always ask for documentation.
  11. Be Cautious with Add-ons: Too many extra features can complicate things.
  12. Research the Company: Look up reviews and complaints. Avoid direct-to-consumer companies.
  13. Ignore “Limited Time” Claims: Genuine products aren’t usually sold this way.
  14. Ask Questions: A good agent will answer all your queries.

Conclusion And Next Steps

Now that you know how to get an annuity, understand buying an annuity is a SIGNIFICANT decision that requires careful consideration and a thorough understanding of your financial landscape. From immediate annuities offering instant income to deferred annuities allowing tax-deferred growth, the diverse spectrum of annuities caters to varying financial needs and goals. To ensure the optimal alignment of your annuity with your retirement plan, delve deep into the contract details, consult with an annuity broker (like us!), and select an annuity provider with proven reliability. Approach annuity purchase with informed confidence, balancing risk and return, and you will be well on your way to securing a stable, fulfilling retirement. Contact us for a free quote today!

Annuity Companies To Avoid And The Do'S And Don'Ts Of Shopping And Buying Annuities.

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Questions From Our Readers

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).

Is it a good idea to buy an annuity at age 40?

Buying an annuity at age 40 can be a strategic move for retirement planning. The forecasting allows you to invest money now in return for a guaranteed income stream in the future, providing clarity on your retirement income. With the power of compounding, your money has more time to grow, which can translate into higher income during retirement.

Do you have to buy an annuity in full when purchasing?

No, you don’t necessarily have to buy an annuity in full when purchasing. There are two common ways to fund an annuity: a lump sum payment or periodic payments over time. A lump sum payment means paying the entire amount upfront, while periodic payments involve making contributions at regular intervals until the annuity begins to pay out.

How do I buy a pension annuity?

To purchase a pension annuity, start by identifying your financial needs and goals for your retirement. Understanding the different types of annuities and their unique benefits is integral to this process. It is advisable to consult a financial advisor who can help you choose the right annuity based on your circumstances. Once you’ve decided, select a reliable annuity provider, considering their financial strength and reputation. Finally, you must submit an application with your chosen provider, specify the annuity terms, and make the required payments.

How does an annuity work as a buyer?

As a buyer, when you purchase an annuity, you make an upfront payment or series of payments to the insurance company. In return, the company agrees to make future payments to you immediately or starting at a certain point. These payments may last a specific number of years or for the rest of your life, depending on the annuity contract.

How long does it take to buy an annuity?

Buying an annuity can take anywhere from a few days to several weeks. This timeline depends on factors such as the complexity of the annuity product, the responsiveness of the insurance company, and the time it takes for you to complete any required paperwork or medical exams. The insurance company will issue the annuity contract after the application is submitted and approved and the payment is made.

How do you buy an annuity for a lump sum payout?

To acquire an annuity allowing a lump sum payout, you must invest in a deferred annuity, such as a fixed, fixed indexed, or variable one. Once the contract period concludes, you can withdraw or transfer the entire account balance as a lump sum.

How to buy an annuity with cash?

Purchasing an annuity with cash involves paying a lump sum to an insurance company. Firstly, assess your retirement needs and understand the different types of annuities. Then, select a trustworthy annuity provider. Submit your application, indicating that you’ll be making a lump sum payment, and transfer the cash to the insurer via a wire transfer or mail in a check.

How to buy a qualified annuity?

You often use pre-tax dollars through a retirement plan like a 401k or IRA to buy a qualified annuity. Start by identifying your retirement needs and goals. Then, explore the different types of annuities and choose the one that best suits you. Select a reliable annuity provider, complete the application, and fund the annuity using money from your retirement account via a transfer form.

How do you tell if an annuity is good for the buyer?

Assess your financial goals and retirement needs to determine if an annuity is good for you. Consider factors like the annuity’s fees, surrender charges, the insurer’s financial strength, and the annuity’s potential for income growth. Compare these factors with other investment options. Additionally, consider your risk tolerance and the annuity’s payout options.

What portion of your savings is used to buy an annuity?

The portion of your savings to put into an annuity depends on your financial goals, risk tolerance, and other retirement income sources. A standard guideline is to invest enough to cover your necessary expenses in retirement not covered by Social Security and pensions.

Is buying an annuity at 30 a good idea?

Purchasing a fixed indexed annuity at age 30 can be a smart strategy for the safer portion of an investment portfolio. This type of annuity offers a unique blend of potential for growth linked to a market index and protection from market downturns, serving as an alternative to bonds. The earlier purchase allows for a longer accumulation phase, which can lead to a higher income during retirement.

Can I buy an annuity with my 401k?

Yes, you can buy an annuity with your 401k funds. This is typically done by rolling over the funds from your 401k into an individual retirement account (IRA) annuity without incurring taxes. This strategy can provide a steady stream of income in retirement.

Which annuities are safe to buy online?

The safest annuity to buy online is a fixed, fixed index, immediate, or long-term care annuity.

Which annuities are better bought with an agent, face to face?

Consult a financial advisor before buying variable annuities. These annuity products are complicated, have investing risks, and can come with high fees.

Should I buy an annuity from a poor-rated insurance company

The short answer is “no”; you shouldn’t buy an annuity from an insurance company that is not A- rated or better. Why? Because there are too many great options with highly-rated annuity companies. Plus, Errors and Omissions Insurance doesn’t cover B-rated companies generally.

Are there benefits to buying from a B-rated insurance company?

Despite the risks, there may be some benefits to buying a “B” rated annuity. For example, the interest rates may be higher than those offered for annuities with higher ratings, which could result in a higher overall return on investment. In addition, the premiums for “B” rated annuities may be lower than those with higher ratings, making them more affordable for some individuals.

Can anyone buy an annuity?

Anyone can purchase annuities, including those who receive social security payments. However, annuities are especially suitable for retiring people who want a guaranteed income stream to supplement their retirement savings. They are also suitable for individuals who want to ensure their beneficiaries receive a steady income after death.

Can you buy an annuity directly from the insurance company?

Yes, you can buy annuities directly from insurance companies without going through an intermediary. The type of annuity that can be purchased directly is one you want to get a second opinion on. However, consulting a financial advisor, like The Annuity Expert, can help ensure the product fits your financial needs and goals.

What is the primary reason for buying an annuity?

Annuities provide a steady, reliable income that lasts as long as you live. It’s a safeguard against the risk of outliving your savings, a genuine concern in an era where life expectancies are continually increasing.

What annuities have hidden fees?

Sometimes, there are hidden fees when purchasing an annuity. Variable annuities can include surrender charges, administrative fees, mortality and expense risk charges, management fees, and other miscellaneous costs that may not be immediately obvious. These fees can vary significantly depending on the annuity product chosen.

What’s the average age of a typical annuity buyer?

The typical annuity buyer falls within the age range of 45 to 75 years old.

Who purchases the most annuities?

Most people who buy annuities do so with retirement income stability in mind. According to a 2020 report by the Insurance Information Institute, about 34% of all U.S. households owned annuities.

What is the best age to buy an annuity?

While there is no universal rule for when to purchase an annuity, it is most common among individuals in their fifties to seventies. Younger buyers in their thirties and forties typically seek secure growth for their savings, those in their fifties and sixties often aim to bolster their pre-retirement savings or secure a guaranteed lifelong income, and purchasers in their seventies usually focus on securing income, planning their estate, or preparing for long-term care needs.

At what age can you start getting your annuity?

You can start receiving annuity payments at any age you choose, depending on the type of annuity and its terms. Some start as early as 55, while others may be designed to start later, like at age 65 or 70.

Can I start collecting payment on annuity if I buy when I’m 67?

Yes, if it’s an immediate annuity or as specified in the contract.

At what age do you stop being able to contribute to an annuity?

There’s no age limit for contributions, but some products may have restrictions.

What age should I tell my child about my annuity?

When they’re old enough to understand financial planning, possibly in their teens.

Who is eligible for an annuity?

Anyone can buy an annuity; payout eligibility depends on the contract terms.

How long does it take to set up an annuity?

Typically, it takes a few weeks up to a month, depending on the provider and annuity type.

How much do banks look for in your account before you can buy an immediate annuity?

Most annuity providers want to see at least $85,000 in total liquid assets before purchasing an annuity.

How soon after buying annuity payments start?

Immediate annuities start within a year, often within a month.

How do you buy an annuity that you pay for once a month?

Set up a monthly payment option on the payment form when you’re ready to start receiving payments.

If I buy an annuity now, when can I receive my first check?

Typically, 30 days.

What is the smallest dollar amount of an annuity?

Some annuities can be purchased with a few thousand dollars.

What type of annuity should you get if you want to receive payments in a month?

An immediate annuity or a deferred annuity with a lifetime income rider is suitable for payments to start within a month.

How to fund an annuity?

Fund an annuity with a lump sum or through regular contributions, often from personal savings, IRA rollovers, 401k funds, or other investment proceeds to make contributions.

How do you set up your own annuity?

Contact an annuity broker to discuss options and establish an annuity contract based on your financial goals. Allocate funds regularly into a deferred annuity, choosing between fixed, variable, or indexed options.

How to build annuities?

Invest in multiple annuities with different terms and benefits to create a diversified income stream for retirement.

How do you make your own high-yield annuity?

Opt for an indexed annuity with the potential for higher returns.

How do you use annuities to create your own pension?

Invest in a lifetime income annuity to provide a steady, predictable income stream, similar to a traditional pension.

At what age are the most annuities purchased?

Annuities are most commonly purchased by individuals in their 50s to early 70s.

What is an annuity minimum investment?

The annuity minimum investment refers to the minimum amount of money required to be invested in an annuity contract. This amount varies depending on the insurance company and the specific annuity product. It is important to consider the annuity minimum investment when deciding whether to invest in an annuity.

How much is an annuity?

An annuity’s cost depends on various factors, such as the individual’s age, gender, and desired payout options. To accurately determine how much an annuity will cost, it is recommended to consult with a financial advisor or insurance agent who can assess your specific needs and provide an accurate estimate.

Can I preview an annuity contract before I buy it?

Yes, you can preview an annuity contract before purchasing it, often through a document known as a prospectus. An annuity prospectus provides detailed information about the annuity, including its features, fees, potential returns, and other important terms and conditions. It’s designed to help you understand the product fully before committing. Reviewing the prospectus carefully can help you make an informed decision about whether the annuity suits your financial goals and needs.

I’m considering buying an annuity, but I want to start receiving payments before 59. Is this possible?

Yes, you can start receiving annuity payments before age 59, but be aware of potential early withdrawal penalties on any tax-deferred growth in your annuity until you reach 59½. A viable strategy could be purchasing a fixed-indexed annuity with a Guaranteed Lifetime Withdrawal Benefit. This option offers asset protection and the payments you desire. You could defer starting the lifetime payments and instead initially take a 72(t) distribution for penalty-free withdrawals. Once you’ve fulfilled the 72(t) requirements, you could then commence the lifetime annuity payments. This approach can provide early income while mitigating penalties.

I purchased an annuity, and I’m receiving payments. Will the insurance company withhold taxes, or will I receive a 1099?

When receiving payments from an annuity, whether the insurance company withholds taxes varies. Some companies will withhold taxes from your payments, while others may not, leaving the tax responsibility to you. Additionally, regardless of tax withholding, you will typically receive a 1099 form from the insurance company. This form reports the amount of income you received from the annuity, which you’ll need for your tax filings.

Can you buy annuities for minor grandchildren?

Yes, you can buy annuities for minor grandchildren. Generally, annuities do not have a minimum age requirement for the beneficiary, allowing you to purchase an annuity for a grandchild, regardless of age.

What are the charges for canceling an annuity within a year of purchase?

The specific charges depend on the annuity contract terms and the state of residence at the time of purchase. Generally, early cancellation fees, often called surrender charges, can range between 10% to 12% in the first year.

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

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

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