Annuities are a sure way of generating a lifetime income and save for your retirement minus the worries of market risk. You even get to leave something for your favorite charity or family members. However, before anything else, you need to know what is an annuity and how to find the right one.
What is an annuity?
Annuities are investment products sold by financial institutions or insurance companies to grow and hold funds. Essentially, it is a written contract between the firm and you. By annuitizing, you are investing a particular amount with the firm in return for a payout stream that you can start now or in the near future. The payouts can either be for a few years or a lifetime. Now that you know what is an annuity, let’s move on to helping you find the best one.
How to find the best annuity for you
Once you have a complete understanding of what is an annuity, the rest of the way is easy.
The reasons to use the annuity:
Apart from what is an annuity, you need to know about the types of annuities. If you are nearing retirement or are already retired, you would need a steady income. A fixed annuity can help you with that. An indexed or variable annuity is a good idea when building up for retirement. A variable annuity with death benefits is ideal if you want to leave something to your kids or grandkids.
The need for the money:
You need to consider whether you need the money right away or in the next five years. It is a crucial factor to keep in mind when you’ve surrender fees that might affect the principal amount in case the funds are taken out early.
The minimum guaranteed return:
Guaranteed minimum returns are the stated returns that you’ll make regardless of what the situation is. In fixed annuities, you will obviously get minimum guaranteed returns. But you will also get minimum returns on indexed and variable annuities. It will let you get a better understanding of your annual earnings in a worst-case scenario.
The annual and initial fees charged:
In many cases, you need to pay a yearly amount to the financial institute. There might also be certain upfront charges to be paid to the company. You will find the details of this information in the company’s prospectus. If you know what is an annuity, you would also realize that high charges will majorly reduce the benefits.
The surrender fees for early withdrawal:
Many annuity funds have a particular surrender period during which you cannot withdraw funds without a penalty. Surrender fees are the amount to be paid for early withdrawal of funds. The fees are not the same for each company. The rule of the thumb is that you pay a lower surrender fee when you hold the annuity for a longer time.
And that’s all! You will now find it easier to choose the right annuity for your needs.
