June 16, 2023

How To Buy An Annuity: A Comprehensive Guide To Purchase An Annuity In Retirement

If you’re thinking about buying an annuity, you’re not alone. In fact, according to a recent study by the Insured Retirement Institute, nearly one in four retirees say they are very likely to purchase an annuity within the next 12 months.

But before you sign on the dotted line, it’s essential to understand exactly what an annuity is and how it works. That’s why we’ve put together this complete guide to help you decide whether or not purchasing an annuity should be part of your financial plan.

How to Buy An Annuity

Annuities are essential in retirement planning, providing a steady income stream for a fixed period. However, buying an annuity can be a complex process that requires careful consideration.

Firstly, you need to assess your financial situation and needs, including how much income you will need and for how long.
Second, you can look at the different types of annuities available, such as fixed, variable, and indexed, and choose one that aligns with your goals and risk tolerance.
Third, when selecting an annuity provider, it’s essential to consider the company’s financial and credit ratings and reputation.
Fourth, once you’ve chosen a provider, you can complete the application and pay the required premiums.
Lastly, you can review the annuity’s terms during the free look period and decide whether to keep it.

It’s essential to purchase the right product, which may involve shopping around for the best rates and seeking advice from a financial professional specializing in annuities. Contact Integrity Now Insurance Brokers and learn how to buy the annuity that meets your monthly income needs.

What Are The Steps On How To Purchase An Annuity?

Step 1: Do your research on annuity products

Research is essential before purchasing an annuity product. The following are the steps involved in researching annuity products.

Assess your current financial situation and future financial needs to determine the annuity product that best suits you.
Contact an independent annuity expert for the best rates and ensure that the company you’re buying from has a good rating.
Read through any sales materials, including the prospectus of any annuity you consider.
Work with a financial professional at Integrity Now Insurance Brokers to help you assess your needs and set long-term goals.
Research different annuity options and their illustrations with our financial consultants.
Find a reputable insurance company with a solid financial rating or a better annuity provider for a reasonable, competitive rate.

Step 2: Understand your financial goals

When considering purchasing an annuity, it is essential first to understand your financial goals. This can be achieved by assessing your current needs and setting long-term goals with the help of a financial professional.

Once you have a clear plan, we will research different types of annuities based on your retirement objective – lifetime income or growth.

Step 3: Meet with an annuity agent

During the meeting with your annuity agent, the agent will ask you some suitability questions designed for consumer protection and help the insurer determine whether the annuity product is appropriate for your financial situation and needs.

These may include questions about your age, financial status, and tax bracket, among other things. It’s also essential to ask important questions about annuities yourself and the tax benefits.

The annuity agent will create an illustration based on your financial goals showing how a fixed immediate annuity would provide a fixed-guarantee income. They will also illustrate a fixed-indexed annuity to compare the two plan options.

Step 4: Read and understand your annuity contract

The illustration will provide you will an overview of the annuity contract. It will identify the following items:

Interest rates offered by the annuity companies
The minimum amount of annuity payments
When immediate annuities begin
Annuity rider cost (if purchased additional benefits)
Early termination fee schedule

Step 5: Select a suitable annuity provider

Selecting a suitable annuity provider is crucial to ensure you choose the right product for your financial needs and receive the resources you need now and in the future. By researching annuity products, assessing your needs, and finding a reputable insurance company, you can ensure that you are making a sound investment for your retirement.

Step 6: Complete the application form

To purchase the annuity, you will need to complete an application form. The application will review your current financial investments, your checking and savings account amount, and total assets.

These questions ensure the annuity agent and company protect your best interest before they lock up your funds within these insurance products.

Integrity Now Insurance Brokers wants our clients to have a minimum of $50,000 in liquid assets to deal with emergencies such as a new roof, plumbing problems, or other unexpected expenses.

How To Fund An Annuity

To fund an annuity, you can contribute a lump sum of cash or regular premiums from sources such as a checking account, savings account, investment account, retirement account, or an inheritance. Another option is to buy an annuity through an employer-sponsored retirement plan.

Assessing your needs and setting a goal before selecting an annuity and finding a reputable insurance company is crucial. Once you have chosen an annuity, you can fund it with cash, a rollover from a retirement savings account, or funds from another brokerage account.

If designed correctly, many annuities can be an excellent source of monthly income. It is vital to walk with an experienced annuity agency that can walk you through buying a qualified annuity.

Top Reason For Buying Annuities As Part Of Your Retirement Plan?

1. Guaranteed Income For Life

As individuals approach retirement, ensuring a steady and reliable source of income becomes a top priority. One way to secure a guaranteed income for life is by purchasing an annuity.

The primary reason for buying an annuity is to guarantee a steady stream of income for the rest of one’s life, regardless of market conditions or other external factors.

There are several benefits of guaranteed income for life through an annuity:

Peace of mind
Protection against market fluctuations
Ability to budget for retirement expenses

According to a study by the Insured Retirement Institute, retirees with a guaranteed income stream are more confident in their retirement and report higher satisfaction than those without. 94% of retirees with guaranteed income were satisfied with their retirement, compared to 72% of those without.

2. Tax-deferred Growth Of Funds

Tax-deferred growth is a crucial concept in retirement planning, and annuities offer a way to take advantage of this benefit. When funds are invested in an annuity, any earnings are not taxed until withdrawn, allowing for potential growth.

One of the primary benefits of tax-deferred growth is the ability to accumulate more funds. Retirees can reinvest earnings by delaying taxes and potentially earn even higher returns.

3. Safety Of Principal Investment

An annuity is an investment vehicle that provides a guaranteed income stream for a fixed period. When considering annuities, the safety of principal investment is a crucial factor to consider.

An annuity provides the safety of principal investment in several ways.

Firstly, a deferred-variable annuity protects 100% of the original investment against market declines while providing growth opportunities.
Secondly, some annuities offer a guaranteed rate of return, with tax deferral, over a set period.
Thirdly, some annuities offer a guaranteed lifetime income safe from market fluctuations.
Finally, annuities provide asset protection with growth potential.

4. Low Actuarial Risk

An actuarial risk is the likelihood of an event occurring based on statistical data, and it is a fundamental concept in the insurance industry. In annuities, the risk of losing money is minimal due to low actuarial risk.

This is because annuities are designed to pool risk and use mortality tables to determine payouts, making them a reliable source of income for retirees.

5. Potential For Returns In Excess of Equities

When making financial decisions, potential returns are often a key factor that people consider. While equities may be a popular investment option, annuities have the potential to offer returns that exceed those of equities.

Annuities offer guaranteed income streams, providing a sense of security that is not available with equities. This can be particularly beneficial for retirees looking for a reliable source of income to cover their expenses.

Annuities can be structured to provide higher payouts as you age. For example, some annuities offer increasing payouts linked to inflation, which can help ensure your income keeps pace with rising living costs.

Annuities can provide higher returns than equities in some cases. For example, fixed annuities offer a guaranteed rate of return, which can be higher than the returns available from some bonds or CDs.

Types Of Annuities To Buy

1. Fixed-rate annuities

Fixed-rate annuities are a popular choice among retirees looking for a guaranteed source of income in their retirement years. These annuities offer a fixed rate of return, which means that the income you receive each month is predictable and stable.

Types of Fixed-Rate Annuities:

Deferred annuity: This annuity provides payouts at a later time, such as when the owner turns 85. It suits those who want to accumulate wealth for their retirement years.
Immediate annuity: This annuity requires a lump-sum contribution from the buyer and then converts the money into constant, guaranteed income for a certain number of years or over a lifetime. It is suitable for those who want to start receiving income immediately.
Fixed-period annuity: This annuity offers payouts for a set period, such as five years. It is suitable for those who want to receive income for a specific period.
Lifetime annuity: This annuity provides income for the rest of your life, even if all the money you’ve chipped in has been withdrawn. It is suitable for those who want a steady and guaranteed source of income for the rest of their life.

2. Fixed Index Annuity

Fixed-indexed annuities are a type of annuity that offers a balance of security and potential growth for those in or near retirement. These annuities earn interest based on the performance of an external index, such as the S&P 500, while protecting the principal from stock market crashes.

Here are some of the key features of fixed-indexed annuities:

Guaranteed rate of return: Fixed-indexed annuities offer a guaranteed rate of return, ensuring you will receive a fixed monthly income.
Potential for higher returns: In addition to the guaranteed rate of return, fixed-indexed annuities also offer the potential for higher returns based on the performance of the external index.
Protection from stock market volatility: Fixed-indexed annuities protect the principal from stock market crashes because the annuity is not directly invested in the stock market.

3. Variable annuities

Variable annuities are a type of annuity that offers retirees the potential for higher earnings through market investments but also come with higher risk and high fees.

Here are some crucial points to consider before purchasing a variable annuity as a retiree:

Investment Options: Variable annuities allow you to direct your payments to different investment options, typically mutual funds. This gives you some control over the performance of your annuity, but it also means that your payout will vary depending on how much you put in, the rate of return on your investments, and expenses.
Securities Regulation: Variable annuities are considered securities and are regulated by the SEC.
Fees and Charges: The contract should clearly state all fees, including surrender charges if you sell or withdraw money too soon after purchase. Make sure you understand all fees associated with the annuity before making a purchase.
Tax Implications: If you are investing in a variable annuity through a tax-advantaged retirement plan, such as a 401(k) or IRA, you will not receive any additional tax advantages from the annuity.
Risk Tolerance: Retirees should consider their risk tolerance before purchasing a variable annuity. While there is potential for higher earnings, there is also a higher risk of losing money in the account value.

Which Annuities Are Safe To Buy?

Safe Annuities: Fixed Annuities

Fixed annuities are a safe investment option for retirees due to their guaranteed rate of return and fixed income payments. These annuities offer a minimum interest rate and a fixed amount of periodic payments, ensuring a predictable income stream.

Fixed annuities are regulated by state insurance commissioners, providing additional security for investors.

Safe Annuities: Fixed Indexed Annuities

Fixed-indexed annuities (FIAs) are a type of annuity that provides a balance of security and potential growth. They offer principal protection while also participating in market gains.

FIAs are suitable for retirees who want to benefit from market growth and protect their principal from market losses.

Which Kind Of Annuity Offers Lifetime Retirement Income?

Different types of annuities are available, but the ones that offer lifetime retirement income are fixed and fixed index annuities. In a fixed annuity, the investor pays a lump sum to an insurance company, and in return, the company guarantees a fixed interest rate for a certain number of years.

The fixed annuity offers a predictable and stable source of retirement income that can help investors meet their daily expenses and protect them from market volatility.

Annuities are purchased through one of our independent annuity consults, which can help you buy a deferred annuity that provides guaranteed income for life. When you are ready to buy an annuity, contact us for a no-cost financial review and annuity quote.

We Can Help You Buy The Best Annuity Meeting Your Financial Goals

At Integrity Now Insurance Brokers, we understand that buying an annuity can be complex and overwhelming. That’s why we offer personalized guidance to help you find the best annuity that meets your financial goals.

Our experienced annuity professionals will work with you to understand your unique needs and circumstances, and provide tailored solutions that maximize your retirement income.

Our experts will help you navigate the various options and choose the one that’s right for you. We take a transparent and honest approach to our work, ensuring our clients understand all the details and fees.

As an independent insurance agency, we work with hundreds of insurance companies allowing us to buy the highest annuity rates available. We also specialize in Medicare supplement plans, Medicare Advantage plans, cancer policies, best dental and vision plans, individual health insurance plans, business insurance, and home and auto insurance.

With Integrity Now Insurance Brokers, you can have peace of mind knowing that we have your best interests at heart and are committed to helping you achieve your financial goals. Contact us today to schedule a consultation and start securing your financial future.