Is An Immediate Annuity Right For Me?
How To Know Which Insurer To Buy Through
Choosing an annuity company for your immediate annuity means selecting a partner for life, so it's good to start by checking on the company's financial stability. While the reputation of rating agencies was tarnished when they mis-rated the safety of mortgage securities before the 2008 financial meltdown, their insurance company ratings generally held up well and continue to be useful.
Are the agencies rankings accurate in every instance? No one knows for sure. However, when comparing insurance companies relative to each other the ratings give valuable insights. If you're concerned with insurance company safety, consider splitting up your annuity premium among several highly-rated companies.
An Immediate Annuity Case Study
A husband and wife, ages 65 and 63, like the idea of getting steady income from an immediate annuity. They have $120,000 free cash available to purchase the annuity and have received a quote showing an income stream of $XXX per month assuming a 100% survivor option is selected. Is this a good idea for them?
The answer to whether an annuity is a good option for them isn’t as simple as ‘yes or no’. Perhaps they should first meet with a fee-only financial planner to review their overall retirement plans. They'll need to consider many factors. How much in investable assets do they have? What are their current estimated expenses and what percentage will the annuity’s income cover? What other sources of income do they have? What are their ages and what's the state of their health? Do they want to leave a legacy to beneficiaries?
We had heard about annuities and were investigating them for our IRAs. We also heard bad things about pushy brokers over the years. So when we went to the ImmediateAnnuities.com site we were skeptical about calling them. But whenever we called their staff was really friendly. They answered all our questions and one of their reps even told us that at our ages there was no advantage to buying the annuity with our IRAs. These guys are really honest!
How To Know When an Immediate Annuity Is Not Right For You
While an immediate annuity can help secure your financial future, it is not the right product for everyone. There are at least two groups of people for whom an immediate annuity may not be the right choice: those who don’t necessarily need income security and those who truly cannot afford it.
It turns out that the right candidate for an immediate annuity is the retiree in the middle of the financial spectrum.
Evaluate Your Need -- Don’t buy an immediate annuity if you don’t need it. If your financial situation is such that you have enough income from Social Security, pensions, investments, rents, and other sources to pay your monthly bills indefinitely, then an immediate annuity may not be right for you. If you need help figuring this out consult with a financial advisor who is willing to sit with you and carefully and honestly evaluate your situation.
Affordability -- Don’t buy an immediate annuity if you can’t afford it. The second type of person for whom an immediate annuity may not be the right choice would be someone who has little savings.
As a retiree, it is crucial to have cash on hand for emergencies and unexpected expenses. Because an immediate annuity requires you to give up a lump sum in exchange for a regular payment, it can be a mistake to buy one if it leaves you without backup savings.
Will Your Savings Last? -- Consider an immediate annuity if you have adequate retirement savings, but not enough to carry you through a long retirement. If you need a strategy to carry you through a long retirement and have plenty of reserve for emergencies, special expenses and a regular splurge from time to time, then an immediate annuity may be just the answer.
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