Top 10 Questions to Ask

Written by Hersh Stern Updated Saturday, February 17, 2018

One of the key benefits of an annuity is peace of mind. But even if you have the right annuity, it will only be worry free if you understand why you purchased it and are sure you have made the choice that's right for you.

Answering these 10 questions will put you well on your way to selecting an annuity that best suits your needs:

1. What are my retirement goals?

Everyone is different, so this question is specific to you and your situation. What would you like to do in retirement?

Some people dream of retiring in a cabin by the lake or moving to a warmer climate, like Florida or Texas. Others hope to travel, to begin a second career, or to leave money to their heirs.

Still others are content to keep life simple. Imagine your life into retirement; it will help to determine how much cash you should keep on hand and how much you can put into an annuity.

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Further, your goals will vary depending on your stage in life. A 60-year-old who is entering retirement might look at this question quite differently from someone who is 75 and already retired.

2. When do I expect to retire?

Gone are the days when 65 was the magic retirement number. For many, an early retirement is an attractive and attainable goal.

For others, work will continue well past 65 – either because of finances or because they just love what they do. Estimating when you'd like to retire is a critical step in being able to calculate the right annuity to buy.

3. How long do I expect to live in retirement?

Today we're living longer and it's common to be in retirement for 25 years or more. Of course, no one can really predict the future.

But projecting your life expectancy will help you estimate how much savings you'll need to sustain your retirement lifestyle. There are some factors you might consider.

Do you have any health conditions or concerns? Did your mom and dad live well into their 90s? People are living longer than ever before, so there is cause for optimism, but it’s equally important to be realistic.

4. Do I need supplemental retirement income?

You can use an annuity to supplement your other sources of retirement income by providing payments that cannot be outlived. These annuity payments can help cover expected living expenses.

Calculating the "gap" between available retirement income (Social Security, a pension and savings) and your essential living expenses (housing, insurance, etc.) can help determine the value that an annuity can provide – and can also help you determine how much you will need in payouts from your annuity.

What other questions should I be asking?


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Comments (10)

  1. Phil:
    Feb 24, 2016 at 03:27 PM

    I am thinking of taking a lump sum distribution of my pension versus the $11,000 a month annuity payout my company offers. You sent me quotes yesterday. What do you think?

  2. Hersh Stern:
    Feb 24, 2016 at 04:31 PM

    Hi Phil-

    Without knowing the details of your company’s offer I can only give you a few “top of the head” ideas to consider:

    Most employers tend to subsidize the annuity payment option they offer their employees. The reason is that most companies prefer an employee to accept the annuity payout rather than take the lump sum. The advantage to the employer is that there is no up-front cost to offer you the annuity. A non-insurance company is not obligated to set aside reserves to cover the full cost of all the future payments they owe. Only an insurance company is obligated to do that. So it’s cheaper for your employer to give you a higher monthly annuity than it is to pay you a lump sum.

    Now it’s true that the Pension Benefit Guaranty Corp (PBGC) requires companies to fund their pension obligation. However, historically nearly all large company pensions in the country remain chronically underfunded because of low investment returns and declining interest rates. How this may affect you is that based on your ages (I looked this up at the PBGC web site) the PBGC will only cover a joint annuity up to $3,500 a month if your ER should be in default on its annuity payments to you.

    If you accepted the lump sum and invested it in 3 or 4 different insurance company annuities, your aggregate monthly income would be less than what you’d get from your employer. However, consider the psychological value or “peace of mind” knowing that your annuity is fully reserved for and guaranteed by several highly-rated insurers that have been around a century or longer.


  3. MC:
    Feb 25, 2016 at 01:02 PM

    After my spouse or I die I want to pass along payments to daughter, age 29.

  4. Hersh Stern:
    Feb 25, 2016 at 01:02 PM

    Hi MC-

    Did you mean for your daughter’s lifetime? Or just for the remainder of the initial premium that neither you nor your wife received while you were living?

    To accomplish the first, set up your daughter as a joint annuitant.
    To accomplish the second, select a Joint Cash Refund annuity.


  5. Jack:
    Mar 22, 2016 at 10:35 AM

    Can the owner of an annuity also be the beneficiary?

  6. Hersh Stern:
    Mar 22, 2016 at 10:36 AM

    Hi Jack-

    Yours seems to be a trick question – LOL. In my experience the only time the owner can also be the beneficiary is when a trust buys an annuity and a natural person is the annuitant.

    However, when only natural persons are involved, the owner and beneficiary would always be two different parties to the contract. Because if a natural person is both beneficiary and owner and dies wouldn’t the proceeds go to the estate of the beneficiary which would be the estate of owner (who died)?

    Your question is an example of a distinction without a difference.


  7. Lenore:
    Mar 25, 2016 at 04:32 PM

    Can I add another lump sum payment to the immediate annuity later on?

  8. Hersh Stern:
    Mar 25, 2016 at 04:33 PM

    Hi Lenore-

    You cannot add premium or principal to an immediate annuity. These are called “single premium” contracts. You can buy a second annuity, if you’d like, at a later date.

    The types of annuities that accept additional premium are called “flexible premium” contracts. These typically are deferred annuities.


  9. Paul:
    Mar 25, 2016 at 04:34 PM

    I recently created a family trust and was advised that annuities should not be included in a trust. The reason given was that annuities are essentially immune from probate and therefore do not need that protection offered by a trust. Is this correct?

  10. Hersh Stern:
    Mar 25, 2016 at 04:36 PM

    Hi Paul,

    I’ll tell you what I know but I strongly suggest you ask a fee-only financial planner or an attorney because they can better guide you on the intricacies of using trusts with insurance products.

    Some of our clients have moved assets out of their estates into certain types of trusts in order to qualify for Medicaid or other government benefits. I can’t advise you on this because it’s not my area of expertise.

    Also, if you’re thinking about making your trust the sole beneficiary of an annuity that has a death benefit, I can confirm that death claims on annuity contracts are settled very quickly by insurance companies, usually within a week or two. That’s because claims for annuity death benefits typically bypass the probate process. For this reason alone, many of our clients with trusts do not make the trust the beneficiary of their annuities.

    Sometimes a client may transfer ownership of an annuity to a trust to protect its cash value from creditors or litigation risk. If that’s your goal, I again recommend that you speak with an attorney (not an insurance agent) to find out if this maneuver makes sense in your situation.