Purchasing an annuity is one of the processes that require research and time, though this should not scare you away from these customizable and safe financial vehicles. You just need to have a good financial planner and a bit of financial literacy to find an annuity that can meet your long-term financial goals. To determine whether or not an annuity is best for you, you should first evaluate your lifestyle, your risk tolerance, and your needs.
Because an annuity is a contract, you can customize it to suit these areas. You need to review the reasons to purchase an annuity, such as lifetime income, financial provisions for your loved ones, long-term care, and many more. Besides, you should also use an annuity payment calculator, know the questions you need to ask, and the best time to seek advice from an expert. In this article, you will learn how you can purchase an annuity.
Purchasing an annuity
After you have selected your annuity provider and read the terms of the annuity contract, you can decide to make the purchase. There are several things you should consider when purchasing an annuity. This includes buying an annuity with retirement funds like an IRA. In such a case, this is a non-taxable event and a custodial transfer. You can also use cash that is in your checking account, so you just need to write a check. And, it can be cash that is in your brokerage account, so you can initiate a transfer.
There are also a couple of steps for purchasing an annuity. Firstly, you must assess your current as well as future financial needs. You can decide to get help from a professional. Remember that a certified financial planner can act as a fiduciary. This means that they need to act in your best interest. You can find good retirement planning questionnaires online, and you should also let your advisor walk you through their questions during the consultation.
Also, you need to choose the annuity product based on the objectives that you have. You can find some annuities that come with some illustrations to give transparency to investors. Remember that an illustration refers to a customized presentation that an annuity provider prepares and gives you. The illustration can include non-guaranteed elements of the annuity contract over a specific period. An annuity provider can offer you a prospectus considering variable annuities. When it comes to illustrations, the prospectus is there to make sure that you make informed decisions.
You can then choose your annuity provider. It’s a good idea to refer to financial rating agencies so that you can have updated ratings on annuity providers. Since the federal government doesn’t back annuities, it’s crucial to choose a stable and reputable annuity provider.
This is now the best time to lock in your rate, so you should submit the application in good order. In good order, it means that you filled out the application accurately and completely. You can prolong the process if you fail to do this. As a result, it can affect whether the insurer can honor the quoted interest rate. You should remember that insurance companies tend to lock policies differently, and not all forms of annuities provide the option of locking in your rate or illustrations.
As explained earlier, you can pay with retirement funds, cash, or a transfer from your brokerage account. But you need to ensure that you know the tax implications of the payment type.
There is the free-look period that you can take advantage of. Many insurance companies provide a period of between 10 and 30 days from the start date of the contract to reject the annuity and give a refund. But if your annuity contract doesn’t have a free-look period, then you should ask your agent why it doesn’t have it.
The benefits of buying an annuity
Simply put, the best time to purchase an annuity is whenever it meets your needs. This tends to differ from individual to individual, so you need to define your investment goals properly and the best ways you can meet them.
Ideally, you need to analyze your financial goals and situation and determine whether or not you should purchase an annuity. For instance, if you maxed out your contributions to some tax-advantaged retirement accounts and desire to set aside more funds for retirement, you can purchase an annuity. Take note that annuity funds are tax deferred, so you don’t need to pay tax on your earnings until you begin to receive payouts.
And, interest rates also play a huge role when it comes to buying an annuity. The right time to lock in the contract is when there are high interest rates. If the interest rates are low, you must wait. Alternatively, you can decide on laddering, which is a strategy that helps you to take advantage of fluctuating financial markets by buying more than a single annuity at different stages in time.
In most cases, you need to purchase a deferred annuity early so that you can give it more time to grow. You should note that a deferred annuity refers to an annuity whose payout starts at a later date. This can usually be after retirement. If you put off getting the income stream for long, the payments can be high.
If you are already retired or are close to retirement and want to have a way for your savings to become a stream of income, then an immediate annuity can be the best option for you. Once you buy an annuity, you tend to give up liquidity or access in exchange for guarantees. Therefore, you need to be comfortable to let your resources become inaccessible immediately.
The guaranteed income stream offered by most annuities gives you peace of mind by making sure that your needs will be cared for in the future. Today, employer-provided pensions are no longer that popular with many people, so many individuals depend on their savings and Social Security. Social Security can replace just a fraction of pre-retirement income. It can also be a huge challenge to live comfortably in retirement while ensuring that you don’t deplete your funds before you pass away.