How can retirees and pre-retirees confidently purchase an annuity?

“So, you’ve finally decided you’d like to have guaranteed income for life, a safeguard against outliving your savings, and a legacy for your loved ones. You want an annuity, but how do you go about buying one?”

Claudias annuity selection process

Claudia (*not her real name), like many of her peers, was fast approaching retirement but uncertain about whether she had enough saved. Her concerns about outliving her money were justifiable since over 70% of American seniors don’t have enough savings to last five years, much less than twenty or thirty.

Claudia’s parents and grandparents had all owned annuities. She knew that Social Security is also a type of annuity, so she decided to check out these financial vehicles for herself. It wasn’t long into Claudia’s research that she found herself lost in a bewildering landscape of conflicting information, myths, and pros and cons. Negative reactions from friends, family members, and co-workers added to her confusion whenever she mentioned her interest in purchasing an annuity.

Fortunately, Claudia quickly realized that while annuities are potent tools that can transform your savings into an income stream you won’t outlive, they are somewhat complicated. Wisely, she met with a retirement income planner who specialized in annuities and other safe money products.

Claudia’s advisor recommended a multi-step approach to ensure that adding an annuity to her portfolio would align well with her risk tolerance and financial goals. Her advisor started the process by asking her a simple question: “What do you want this annuity to do for you?” The advisor said that an annuity might not make sense unless Claudia wanted one of four things- income for life, longevity risk protection, provision for long-term care, or a legacy for her spouse or other loved one.

After a brief assessment of Claudia’s current and future financial needs and helping her clarify her financial objectives, the advisor determined an annuity was a good fit. He then showed her the many different types of annuities available, carefully explaining the pros and cons of each. Together, they determined that a fixed indexed annuity would work best in Claudia’s unique situation.

Claudia’s advisor represented several companies, all highly rated by agencies such as Moody’s and Standard and Poor’s, with excellent reputations in the industry. Claudia researched the companies her advisor represented and chose one of the most highly rated and well-reviewed. She and her annuity specialist reviewed every detail of the proposed contract and selected her annuity payout option. The advisor explained how critical choosing the correct stable carrier is since the government does not back annuities.

Claudia shows her husband her annuity

Next, Claudia’s annuity company allowed her to lock in her rate by submitting an accurate and complete application, known as an application “in good order.” Not all annuities offer the option to lock in a rate, so you’ll need to ask your annuity specialist about that feature before you purchase.

Once Claudia submitted the application and the contract was issued, she took advantage of the “free-look” period. Nearly all annuity companies give buyers anywhere from 10 to 30 days to review their annuity. If, for some reason, a purchaser changes their mind, they may reject the annuity and receive a refund. Always ask your agent whether the annuity product they recommend includes a free-look period. If it doesn’t, you’ll want to know why.

As you can see, with the assistance of a reputable retirement income specialist, purchasing an annuity doesn’t have to be confusing or frustrating. A good annuity advisor knows that annuities aren’t suitable for every senior. To ensure that an annuity is ideal for you, your advisor will ask many questions, perhaps review your portfolio, and offer clear, detailed explanations of every product. You will know you have the right advisor on your team because they will be patient and thorough and will not attempt to push you into a contract just because they get a higher commission. Another trait to look for in an annuity specialist is transparency. They should be willing to answer questions about any aspect of the process, including their compensation. And, even if you think you have found the perfect annuity agent and the ideal product, it never hurts to get a second opinion before you commit. After all, if you are within a few years of retiring, you may not have enough time to recover from a money mistake.

Claudia is happy with with her annuity
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