Annuities: Expert Guides and Resources

Assess your personal situation and follow some basic guidelines for determining if an annuity is right for you. After you decide to buy an annuity, figure out how to shop for annuity contracts and how to use one to make your retirement years financially safer.Tips for deciding on an annuityIf you’re considering an annuity, take a serious look at your personal situation.

Although insurance companies usually assume your interest-rate risk when you buy a fixed annuity, that’s not always the case. With a market value-adjusted (MVA) fixed annuity, you assume the interest-rate risk. In return, the insurance company can afford to pay you a slightly higher interest rate than it pays on non-MVA annuities (book value annuities).

A fixed deferred annuity is the insurance industry’s version of a savings account. The annuity helps you earn a modest rate of interest safely, and allows you to postpone the payment of income taxes on your earnings for as long as you want.When you buy a fixed deferred annuity, you’re indirectly lending money — without taking the risk that the borrower won’t pay you back.

Fixed deferred annuities offer safe, but low, returns and tax deferral. Risk-averse investors buy them when they offer higher interest rates than CDs, when the stock market is declining or appears headed for a fall, and when they’ve already parked as much money as possible into other savings vehicles, like employer-sponsored retirement plans.

Although fixed deferred annuities are a relatively safe investment, there are also reasons why people tend to shy away from them. They include the following: Low liquidity: Generally, if you take more than 10 percent of your money out of your fixed annuity during any single year of the surrender period, you pay a charge.

The single-year guarantee fixed annuity is like an adjustable rate mortgage in reverse. With this annuity, the insurance company promises to pay you a certain rate of interest for one year. But each year until the contract expires, the insurance company can raise or (more commonly) reduce that interest rate. The new rates are called renewal rates.

Would you buy an insurance policy today that would cost you about one-fifth of your savings and pay you a guaranteed lifetime income starting at age 80 or so? If you died before age 80, you'd lose your original premium, but if you lived to age 85 or 90, you'd eventually get back much more than you paid up front.

A fixed deferred annuity is the insurance industry's version of a savings account. It helps you earn a modest rate of interest safely and allows you to postpone the payment of income taxes on your earnings for as long as you want. Fixed annuities sometimes offer higher interest rates than competing investments, such as CDs (certificates of deposit), because the insurance carrier puts your money in longer-term bonds, which typically offer better returns than short-term bonds.

As baby boomers enter retirement age, estate planning and sound investing loom large as they plan for a happy retirement and for leaving their children a legacy. Annuities offer a way to invest your money without the fear of losing it all to the whims of market forces. What is an annuity? Put simply, annuities are investments with money-back guarantees.