Are you looking to buy annuities? If so you may be wondering what the right way to go about buying one is. In this article I will be discussing the best way to buy an annuity so you don’t get ripped off.
Steps To Buying An Annuity
- What is the annuity for? First, you need to consider what you need the annuity for. Most annuities are set up to help protect someone of the financial issues of living to long. However, there may be other reasons such as rolling over a 401k or setting one up for a grandchild’s college education.
- How are you going setup the annuity? When first setting up your annuity you have a couple of ways to do this. You could set it up as an IRA, Roth IRA, or even just as a traditional annuity. I personally like the Roth IRA because it gives you the best tax benefits.
- What riders are you going to add? The great thing about annuities is that you can add riders to them to do everything from guaranteeing a particular cash value to helping you earn extra interest on your account.
- What are the fees? How much does it cost to own an annuity. The fees can range on everything from the annual cost of the policy, the cost of the riders you add on, to sales fees. Fixed annuities tend to have higher fees than variable policies.
- What are the surrender policies? All annuities have surrender fees; they can range from as little as 4 years to 15 years. The fees typically start out high and lower as years pass. For example if you have a 4 year annuity the surrender fees might start at 8% in year one, and in year two drop to 6% and in year three drop to 4% and in your four drop to 2% and in year 5 it drops to 0%.
Things You Should Watch Out For
Now that you know what kind of options are available there are some things you should watch out for. First off, when your surrender fees drop off on your annuity the sales agent may ask you to sign a new contract. The reason they do this is because they will get paid a big commission for signing you back on. Whatever they tell you don’t do it.
Finally, if you’ve owned your annuity for some time and have started taking payments on it some companies may approach you about selling your annuity payments. This is where a company will buy your annuity payments from you and pay you a lump sum. However the downside to this is that when you sell annuity payment you will have to take a discount and what you get back is nothing what you originally paid into it.
In Closing…
Follow the steps I’ve laid out for you, you should have no problem buying your next annuity. Also you may want to consider talking to your local insurance agent to learn more about annuities and what would be best suited for your situation.