An annuity is a great way to ensure a secure retirement, when you’ll have the option to receive the lump sum of money you invested into your future. Payments from an annuity can be received annually, quarterly, or monthly, and this will give you added security and peace of mind because you’ll have the money you need to enjoy your golden years.
Below are 5 things to avoid when purchasing an annuity in order to be certain you’re getting the most out of it.
1. Focusing on Interest Rates
While you’re browsing for the right annuity that will work for you, try not to get stuck on the idea that you need a high interest rate or return on your investment. Although a high interest rate is a bonus, you should bear in mind that the main purpose of an annuity is to provide you with the money you need after you retire. It’s a guaranteed amount of money that you won’t outlive. So while a larger return on your investment would be an added bonus, it shouldn’t be the deciding factor for determining which annuity to go with and which ones to avoid.
2. Not Researching the Insurance Company
Before purchasing an annuity from an insurance company, research its business practices and read reviews of the company. If you decide to go ahead and purchase your annuity from them, keep up-to-date on what they’re doing even after the purchase has been made, especially if you purchased a fixed annuity.
3. Annuitizing the Contract
If you annuitize your contract, you determine in advance how much money the annuity will pay you and how often. Doing so, however, isn’t a wise choice. For example, you may determine that you want the annuity to give you a set amount of money every month that you think will be able to cover all of your expenses, but you aren’t factoring in inflation that raises the overall cost of living. Therefore, you put yourself into a position where you can’t adjust the rate of money that’s given to you, nor how often you receive it. Opt instead for systemic withdrawal, which allows you to adjust your monthly income anytime.
4. Not Naming a Beneficiary
If you purchase an annuity that doesn’t allow you to name a beneficiary, your money will be kept by the insurance company after you die, rather than going to a loved one. Make sure you purchase an annuity that allows you to name a beneficiary who will receive the remaining funds in the account.
5. Paying High Fees
Because annuities are so popular, you can easily find insurance companies that don’t tack on high fees. Therefore, do your research to find reputable organizations that charge low fees so you can avoid unnecessary costs.