17 Great Tips for Choosing Your Annuity

Written by Hersh Stern Updated Monday, November 26, 2018

Chances are good that you have a very simple goal in mind when shopping for your annuity: to make the right choice at the right price and rest assured you’ve done the right thing.

Sounds easy, but for many consumers it's not.

To help you get organized for the annuity buying process, I’ve broken it down into 17 key tips. By tending to each of these, you will be well on your way to making an informed and successful annuity decision.

Your “Before” Strategy — This is the “getting started” phase and includes ways to help ensure your annuity shopping is off to a good start.

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Tip #1 — Take your time. An annuity purchase is a big decision. Be sure you have a good reason to buy, and then avoid anything that feels like pressure to rush. Planning for your retirement takes patience and a carefully executed strategy. The right advisor will understand that it may take months to move from your first contact to being ready to sign an application.

Tip #2 — Shop around. The first annuity you see will likely not be the annuity you buy. Ask your advisor to explain how to compare the various options (be sure to compare “apples to apples”) and then take your time to investigate the marketplace.

Your advisor may be able to help you look at the “top contenders” and break down the differences to help you hone in your buying decision.

Tip #3 — Consult with your Spouse and/or Beneficiaries. This is a significant decision, and it’s usually wise to include family members in the conversation. Some people find that retirement and estate planning details are uncomfortable to discuss, but your family may be relieved to understand exactly what you're thinking of buying and how it will work. What’s more, they may have insights and ideas that you may not have considered.

Tip #4 — Work with a professional. Don’t go it alone. Meet with a fee-based financial planner who can help you decide whether an annuity meets your needs better than alternative investments.

Nowadays, insurance companies and their agents are obliged by law to recommend only products that are “suitable” for their customers, and that determination must always be made on an individual, case-by-case basis.

When meeting with your planner, be sure you feel understood and that you have no hesitation about asking questions. And if he or she says an annuity is the “only way to go,” get another opinion.

Tip #5 — Don’t put everything into an annuity. An annuity can be right for a portion of your savings – but not all of it. You want to be sure to have “emergency funds” on hand that you can access at any time.

What other expenditures should I plan for?

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Comments (2)

  1. Ronald:
    Mar 09, 2016 at 12:12 PM

    I plan to purchase an immediate annuity using IRA money currently invested in a USAA variable annuity. Will I need to sell the mutual funds before purchasing the immediate annuity or will the new insurance company take care of the sale and the transfer?

  2. Hersh Stern:
    Mar 09, 2016 at 12:14 PM

    Hi Ronald-

    When you request an application to buy a new annuity that you’re funding with proceeds from an existing IRA account or existing IRA annuity we’ll usually send you an IRA transfer form to sign with the rest of the paperwork. This form authorizes the “releasing” company (USAA, in your example) to send cash in the amount you specify on the form to the new company.

    Typically, a releasing company will reject a transfer request if there isn’t sufficient cash in the account on the day the transfer request form is received. So my suggestion is to make sure you liquidate sufficient stocks or mutual funds in your USAA account prior to the date you expect the IRA transfer form to be received by USAA.

    Hersh