Retirement Questions: Four Things You Need to Know About Annuities

retirement (Photo credit: 401(K) 2013)

There are so many questions most of us have about retirement, and often, we just push them to the backs of our minds and wish we didn't have to answer them. However, it's important to get prepared as soon as possible. Many looking to prepare for retirement don't know much about annuities, or even know that they exist. This is an important option that should be looked into. Annuities are forms of investments that provide investors monthly payments during retirement. It is important to learn about annuities before purchasing an investment contract. Find out as much as you can about this type of investment. You can learn more by asking the right questions from annuity providers to avoid making bad decisions.

1. Are there fees involved with Annuities?

While annuities are designed to provide investors with ways of creating regular payment during their retirement years, investors have to pay certain amounts of money to purchase annuity contracts. The fees charged for this type of investment vary and are determined by the insurance companies. Investors may have to pay different types of fees including mortality and administrative fees among others. When investing in annuities, research the fees and charges of different annuity providers to make an informed decision.

2. What type of investment is this?

Different types of annuity contracts are available for purchase including fixed, variable, and equity-indexed annuities among others. Fixed annuities offer fixed interest rates on retirement and fixed payment during retirement. Variable annuities offer investors greater control of their investment options. The returns of variable annuities are tied to investment returns of the annuities. Finally, equity indexed annuities are tied to financial indices.

3. How do Annuities affect Investors’ Financial Rating?

Many people view annuities as guaranteed investments. While this is true, the investment is guaranteed by insurance firms themselves. This means that investors have to choose insurance companies with good financial ratings.

Various tools can help investors compare insurance companies. Examples of such tools include financial ratings provided by reputable financial rating entities. These entities provide data on how companies are performing financially and whether investors should be worried about their retirement investments.

4. What Happens to your Money when you die?

Some annuities come with death benefits while others do not provide any form of death benefit for beneficiaries of deceased investors. People should find out if their annuity contracts obligate their insurance companies to pay their beneficiaries for a certain amount of time after they die.

Some annuity investments provide lump sum payments to beneficiaries upon the death of an investor. If an investor’s annuity contract does not have this provision, the insurance company will keep all the money paid in the investment if the investor died before using the money. This can have a significant impact on the financial status of the beneficiaries. Annuities become very important as you prepare to enter retirement. If you set up a fixed annuity now, you would be able to receive the benefits during your retirement period. Fixed annuities offer stability, guaranteed interest, and a set amount of money each year that those who get them can rely upon. It can be difficult to know what exactly is the best place to start with planning for retirement, and even then, it's tough to know what choices to make. Educating yourself more thoroughly on your options is a great place to start, and you should certainly look for answers to all your questions regarding annuities and retirement. Once you're satisfied you at least have an idea what your ultimate goals are, you should likely talk with a professional that can help you sort out how best to treat your personal finances now to be as well off during your retirement as possible. 

Information credit to PNW Annuities Services Seattle.