Layin’ It on the Line: How to buy an annuity in 4 easy steps
“An annuity is a transference of risk contract that can help you create a stream of predictable, protected income. With some due diligence, you can determine if annuities make sense for you.” — Lyle Boss
I’ve been happily selling annuities for years now. I love the product and its power to create income streams that cannot be outlived and protect wealth from various threats, including market downturns.
Yet as much as I love annuities, I also know they aren’t for everyone. For instance, if you are someone who doesn’t want or need protection of your principal investment, guaranteed lifetime income, longevity risk protection or to create a legacy for your heirs, you might not need an annuity. On the other hand, if you want or need any of these features, you should consider adding an annuity to your portfolio.
To ensure an annuity is your best option for a safe money product, you’ll want to be honest about your risk tolerance and financial goals. You will also need some idea of how much money you think you’ll need in retirement and whether your current accounts will be sufficient to meet that need.
I think it’s also imperative to find a retirement income specialist who knows every nuance of annuities and can explain the pros and cons to you in a thorough, understandable manner. After all, as Warren Buffett likes to say, it’s never a good idea to invest in things you don’t understand.
Once you’ve completed your research and determined that an annuity meshes well with your financial goals and risk appetite, you must take a few steps to purchase one.
- Review and assess your current and future money needs. Partnering with a qualified retirement specialist, do a deep dive into your money needs to evaluate where you are retirement-wise and where you want to be. Some advisors will provide you with calculators and questionnaires to help with this process. Look at annuities based on your long-term objectives and carefully review the contract terms. In contrast to what some people believe, annuities are exceptionally customizable and flexible. This product should be selected not based on glossy marketing materials but on the potential to meet your financial objectives, such as income or growth.
- Select a strong annuity company with a stellar reputation. Annuity guarantees are subject to the issuing company’s claims-paying ability and are not backed by the federal government. Therefore, you must exercise great care and select only highly rated, stable carriers.
- With your advisor’s assistance, complete the application. Once you have found the best company and product, you’ll need to accurately and thoroughly fill out an application. Be neat and be complete or the process could take longer than necessary.
- Fund your annuity. There are many ways to pay for an annuity, each with different tax implications and other considerations. You can pay for your contract with cash, use money from retirement accounts such as your 401(k) or IRA, or transfer brokerage account money. Before choosing your funding method, you’d be wise to understand any potential tax issues.
- Take a “free look” at your annuity. Most of the time, annuity companies give buyers a “free look” 10-30 days from the contract’s start date. If you decide you don’t want the annuity, you can reject it and receive a refund.
Take it from the Boss: Not everyone needs an annuity. But for many people, it is the ideal vehicle for turning savings into income that won’t disappear if the market tumbles. The process of buying an annuity can be a bit overwhelming, though. You should always consult a trusted expert to help you through the process and ensure you get the right annuity for your needs and goals.
Lyle Boss is a member of Syndicated Columnists, a national organization committed to a fully transparent approach to money management. Boss Financial, 955 Chambers St., Suite 250, Ogden, UT 84403. Telephone: 801-475-9400.