8 Common Mistakes Annuity Buyers Don't Know They're Making

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5. Selecting your annuity based only on its payout or interest rate.

You may be tempted to hunt for the very best interest rate – but this is only part of the story. A good rate must also be backed by a reputable, highly-rated company in order ensure that your money is safe and you'll receive the income you've been promised.

6. Forgetting about your annuity and not reviewing it annually.

Some types of annuities (like immediate or deferred income annuities) work just fine on “auto pilot.” Nevertheless, it is still important at least yearly to review any changes in your personal finances and how that may impact your annuity.

As conditions in your life change, for instance, there may be opportunities to invest more or even take a bit of cash out.

7. Thinking you're stuck with your "bad" annuity.

Have you purchased an annuity that doesn't work as well as you had hoped? No worries. With certain types of annuities (multiyear, index, or variable) it may be possible to move your money from one company to another without incurring taxes. This can be accomplished through a Section 1035 exchange or IRA transfer, whichever applies.

But be leery of surrender charges and agents who may be anxious to earn a commission. Set a high bar before exiting your annuity. Ask the agent to give you convincing evidence in writing why the new product is better than what you already have.

8. Not updating the beneficiary designations.

Problems can arise when the beneficiary designations are not completed properly, or when the designated beneficiary predeceases the insured or account owner. When these types of things happen, this may force your annuity into probate – often a complicated, expensive and lengthy process for your beneficiaries.

So how do you avoid these 8 pitfalls? One way is to work with someone who will stand by you until you make a great choice that you fully understand.