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Best Annuities for Seniors in 2019

The Top 10 Annuity Companies For 2019

What Are Annuities?

Simply put, annuities are insurance contracts that provide regular payments to you either beginning right away or at a determined point in time in the future. Annuities can help with growing or protecting your retirement savings and can offer you guaranteed income. There are different forms of annuities and each has a set of features that are designed to help you achieve your financial goals if you’re already in retirement, soon to be retired, or saving for retirement years or even decades down the road.

 

Annuities are relatively obscure amongst the general population, and even third parties who sell these financial instruments are often not experts with regards to their knowledge and understanding of them. Insurance companies issue annuities but they don’t actually sell them, they partner with third parties who pitch them to their clients to purchase – banks and independent agents are two main entities who undertake these efforts. As a result, a renowned quote surrounding annuities states “Annuities are not bought, they’re sold.” Commissions are paid on all annuity sales, and they can be upwards of 10% for products that are complex and profitable for the insurance companies. Seniors and every other group of people must do a great deal of research before even considering annuities, and analysts recommend to refrain from annuities unless your IRA and 401(k) contributions are maxed out – then and only then should annuities become a serious thought in your mind.

We outline 10 different insurance companies who issue annuities, and some of which might potentially meet your specific needs. 

  • Prudential Annuities – Detailed fact sheets aren’t available from this company, but you can still do some basic online research with regards to their annuity prospectuses.

  • Athene Annuities – If you are looking to maximize your lifetime income and can wait at least 10 years before receiving money, then the Athene Agility fixed indexed annuity might be right up your alley. 

  • Pacific Life Annuities – Guaranteed rates and caps that can last for numerous years are associated with this company’s fixed indexed annuities.

  • MetLife Annuities – MetLife spinoff Brighthouse Financial provides up to a $5 million dollar premium payment with no prior approval needed for its Shield index-linked annuities. 

  • Jackson Annuities – Jackson Annuities have a well laid out website so that their annuity products can be efficiently researched, and their offerings are well priced in relation to their competitors.

  • John Hancock Annuities – Their company website lacks annuity information, but most notably, some accept payments as high as $5M without prior approval.

  • New York Life Annuities – This company is well-positioned to pay out future claims, and they are open and transparent with regards to information for what each of their annuity products consists of. 

  • AIG Annuities – AIG is a big and well-known company and offer a variety of annuity products – one of which may catch your attention. 

  • Allianz Annuities – The Allianz 222 Annuity can be of interest to senior citizens with its long-term care assistance. 

  • Nationwide Annuities – No need to dive into a lengthy prospectus – Nationwide has a few online brochures to educate you on their current annuity products available for purchase.

How We Built Our Top 10 List

Seniors are readily looking to get a steady stream of income, and with the help from annuities, it can become an amazing reality. There are many factors that we closely examined in our research process to build the best possible annuities list to benefit seniors – overall ratings, annual fees, withdrawal charges, and other key information. If retirement is coming up fast and/or you are looking to protect your assets via annuity product(s), then our top 10 list will be of interest to you.

  • 15 Annuities Examined

  • 2 Experts Consulted

  • 10 Annuity Companies Selected

  • 27 Hours of Research

1. Prudential Annuities

Ease of Use

Excellent

Service & Response

Excellent

Features & Tech

Excellent

Pricing

Excellent

Prudential is a financial services powerhouse which controls more than $1 trillion dollars in assets. There are three annuity products that they offer – the Prudential Defined Income Variable Annuity, the Prudential Premier Investment Variable Annuity, and the PruSecure Fixed Indexed Annuity. Optional riders are available for the variable annuities.

 

Pros

  • Received an “A+” rating from A.M. Best

  • People as young as 45 years of age can sign up and invest in the Defined Income Variable Annuity, and a death benefit comes built-in

  • Their prospectuses are shared online, so potential customers can study each annuity and learn about the basic benefits and costs of each option

Cons

  • Their website doesn’t go into great depth with fact sheets or product guides, just overviews and prospectuses are provided. Perhaps their goal is to offer just enough information to grab some attention from potential customers and motivate them to set up a meeting with their financial professional to get more detailed information

Pricing

When getting the Defined Variable Annuity an initial purchase of at least $25,000 is required. During the first-year additional payments may be permitted, but after that opening year payments are closed. If the annuity has been held for under two years then a fee of 7% is issued for a withdrawal or surrender event. The fee decreases over time and if held for seven years or more then the fee is waived, however, state tax could add up to 3.5% in fees. 

 

There is an annual maintenance fee of 2% of the account’s value or $50, whichever is the lesser amount if purchase payments were under $100,000. Other fees relate to mortality and expense – 0.95%, administration – 0.15%, total insurance – 1.90%, the defined income benefit – 0.80%, and underlying portfolio expenses are roughly 0.75%. 

The Bottom Line

There are various complexities for researching and trying to make sense of Prudential Annuities, and while the prospectuses and information are helpful it’s still a heavy read and difficult to digest. Before sitting down to read a prospectus and trying to find a product you like from Prudential or from another company for that matter, you are advised to begin your overall research using the Jackson Annuities website (which is outlined below) to comprehend the standard terms. 

2. Athene Annuities

Ease of Use

Excellent

Service & Response

Excellent

Features & Tech

Excellent

Pricing

Excellent

Athene Annuities is a retirement services company which issues contracts for fixed indexed annuities, multi-year guarantee annuities, and single premium immediate annuities. The company claims that it is #2 in fixed indexed annuity sales.

Pros

  • Received an “A” rating from A.M. Best

  • Optional riders on fixed indexed annuities include a death benefit, better liquidity, and lifetime income

  • Liquidity rider allows for up to 10% free withdrawals per year and up to 20% free if no withdrawals the prior year, along with other features

  • The MyAthene online portal provides annuity customers with the ability to request withdrawals, set up required minimum distributions, and conduct other actions

Cons

  • It’s advised to have a sound understanding of Athene’s fixed indexed annuities before speaking with a financial professional as products can be pushed harder towards those who don’t grasp all of the product details so well

  • Their consumer part of the website paints broad strokes with regards to each annuity product, but if you dig a little bit you can discover additional information on pages that are tailored towards sales professionals 

Pricing

A prime focus of the company’s right now is their Agility Fixed Indexed Annuity which includes a 10-year surrender timeline with fees starting at 9%. Built-in income and death benefit riders are included at no extra charge, so they are certainly perks of purchasing this product. Depending on the state you reside in the minimum premium is either $5,000 or $10,000, the maximum is $1M, and only single premiums are allowed. The minimum $5,000 premium includes the states – Alaska, Hawaii, Minnesota, Missouri, New Jersey, Oregon, Pennsylvania, Texas, Utah, and Washington. 

The Bottom Line

The Agility product from Athene is somewhat similar to the Allianz 222 Annuity, but both products vary in features and both can be difficult to properly understand with all of the industry speak that’s used in their descriptions – note that the above Allianz product is outlined below in detail. We believe that Athene Agility’s income benefit is greater, and it translates into more lifetime income which is something you can actually understand and certainly value. Another nice aspect is that your 10% no-charge withdrawals can be derived from the initial premium or the account value, whereas with the Allianz 222 Annuity it’s only the former. If you are looking at least 10 years out for lifetime income to begin, then Athene Agility might make a lot of sense for your long-term financial needs. 

3. Pacific Life Annuities

Ease of Use

Excellent

Service & Response

Excellent

Features & Tech

Excellent

Pricing

Excellent

Pacific Life Annuities is a mutual insurance company, so it exists and operates to benefit its policyholders and contract owners. They issue various annuities including variable, fixed indexed, fixed, immediate, and deferred income products.

Pros

  • Received an “A+” rating from A.M. Best

  • Their wide collection of annuity products have been designed to meet the needs of a broad spectrum of potential customer’s needs. 

  • They do a great job of providing easy-to-understand online fact sheets and product guides so that you can break down each annuity in a clear cut and time-efficient way

  • Depending on your preference – some indexed annuities have guaranteed rates and caps spanning five, seven, or ten years

Cons

  • The drawback of getting those guaranteed rates and caps is that the rates are slightly lower, which is understandable as you usually can’t have your cake and eat it too 

  • Withdrawal fees can get as high as 9%

Pricing

Taking a close up look at their variable annuity, Pacific Choice, typical fees are charged including mortality and expense risk, and administration and they fluctuate depending on your chosen timelines. Looking at the mortality and expense risk on a three-year timeline it comes in at 1.25% and drops to 0.95% for the five-year option. The minimum purchase payment for those qualified is $2,000 ($50 subsequent), or for those who are non-qualified, it’s $10,000 ($250 subsequent). A withdrawal fee is 7% but it does come down over three or five years of time, and there is an option where no withdrawal fees will be charged. There are additional fees that are assigned to gain benefits such as stepped-up death and earnings enhancement death, for example. More benefits can certainly come in handy but keep in mind that fees can go beyond 7%, although this is fairly standard in the industry for variable annuity products that offer additional optional riders. 

The Bottom Line

When presented with more product choices it usually means it’s harder to make a final decision due to analysis paralysis – with Pacific Life’s annuity choices this certainly holds true. The company must have realized this as their fact sheets and product guides are easy to navigate, and digesting the information is easier than how most of their competitors conduct business. Fact sheets provide the ability to skim over key information including fees, minimum purchase payments, maximum owner issue age, access to money, withdrawal charges, and investment options. Reviewing a thorough prospectus can come further down the line once you have narrowed your interest down to one or maybe two annuity products – thanks to the fact sheet resources. 

4. MetLife Annuities – Now Brighthouse Financial

Ease of Use

Excellent

Service & Response

Excellent

Features & Tech

Excellent

Pricing

Excellent

MetLife spun off its annuities business and it’s now known as Brighthouse Financial who sell and issue four types of annuities including variable, fixed, index-linked, and income. 

Pros

  • Received an “A” rating from A.M. Best

  • A maximum contract for an income annuity are people up to 90 years of age

  • FlexChoice Access rider for a variable annuity is based on the age of the oldest owner, so no waiting for a spouse who’s younger to catch up to the minimum age requirements

  • No annual fees are charged for Shield annuities

  • Customer support is available weekdays from 8 am to 7 pm EST – note that during the transitional period, however you may connect with MetLife representatives and not Brighthouse Financial representatives directly 

Cons

  • Just like all companies that go through transitions in corporate restructuring – if you were used to dealing with MetLife but now need to adjust Brighthouse Financial, there may be a learning curve with new processes and protocols in place

Pricing

Annual fees for Shield index-linked annuities don’t exist which is a nice bonus for some financial savings. The minimum investment that can be made is $25,000, to exceed more than $5M requires having prior approval in place, and withdrawal fees start at 9% and last for five years. 

 

The variable annuities with FlexChoice Access have fees including an annual contract fee, mortality, expense and administration. Withdrawal charges can go as high as 7%.

The Bottom Line

If you still have protection and want to configure it, then a Shield annuity might be right for you. What happens is you select from three indexes to track, three Shield asset protection rates, and three-term lengths. With regards to strong growth prospects, you should be looking at the S&P 500 index, but it’s advised to check the rates page before making a determination.

5. Jackson Annuities

Ease of Use

Excellent

Service & Response

Excellent

Features & Tech

Excellent

Pricing

Excellent

Jackson National Life Insurance Company began its successful journey as a family business back in 1961 and has since evolved and grown into one of the country’s leading annuity companies. The company issues a diverse collection of products including five fixed annuities, five variable annuities, and six fixed indexes. 

Pros

  • Received an “A+” rating from A.M. Best

  • Their large selection of annuity products allows for many types of people to be accommodated and to benefit

  • The company is transparent about the fees it charges, and the benefits of each annuity product are well communicated to potential customers

  • The company has a specialization in annuity products and the singular focus is beneficial to its clients

Cons

 

  • The large selection of annuities is both a pro (as outlined above) and a con as it can be challenging to decide on what product to go with

  • The withdrawal charges which start at 9% for fixed indexed annuities are rather high and can last up to 10 years

  1. Pricing

    The presentation of fees, facts, and information about all of their products is very well done, and it’s certainly appreciated by potential customers as it makes comparing their products easy to do and simple to understand about what the costs and benefits are. We examine three of their products below, one from each category to give you a general sense of what you can expect from their portfolio of offerings. 

     

    1. Elite Access Variable Annuity – For accounts that are qualified initial premiums are $2,000, non-qualified accounts are set at $5,000, and an additional premium can be made starting at just $500. Accounts that exceed $1M have no administration fee – otherwise, it’s 0.15%, mortality and expense risk is 0.85%, withdrawal fees last five years and start at 6.5%, depending on the options chosen the investment expenses range from 0.53% to 2.26%. There’s also an annual contract maintenance fee of $50. 

    2. MarketProtector Fixed Indexed Annuity – The initial minimum premium is set at $25,000, and within the first year an additional premium as low as $500 is permitted. Withdrawal charges start at 9% and last either five, seven, or ten years, depending on which option is selected. If the single life option is chosen then annual fees are 1.25%, and the joint-life option is set at 1.40%. 

    3. Max Family Fixed Annuity – Minimum premiums are $2,000 from a qualified perspective and $5,000 for accounts who fit into the non-qualified category. Withdrawal fees start at 6% within a six-year timeframe, and no other fees exist which is common for fixed annuity product offerings.  

    The Bottom Line

    Jackson’s website is the ideal experience for those who are new to annuities as its user-friendly, presents all information in a clear and transparent fashion, lays out the terminology, fees, and rates so that you can comprehend what they offer and the knowledge can be applied to competing websites as well. Overall, their annuities are priced fairly well in comparison to other offerings from competing companies, and as a result, their products should be seriously considered when in the buying process.

     

6. John Hancock Annuities

Ease of Use

Excellent

Service & Response

Excellent

Features & Tech

Excellent

Pricing

Excellent

John Hancock is a recognizable brand name that together with its subsidiaries manage in excess of $1 trillion dollars of assets across markets including annuities, life insurance, 401(k) plans, and college savings plans. With regards to their annuities offerings, they issue fixed, variable, and immediate. 

Pros

  • Received an “A+” rating from A.M. Best

  • They have three different kinds of annuities to pick from

Cons

  • Their annuities website is not very well suited to do preliminary product research on

  • They actually encourage you to contact your financial professional or to get one if you don’t currently have one, to get their annuity product details and prospectuses

Pricing

Taking a closer look at their Venture Variable Annuity, it comes with standard fees and charges, these include withdrawal charges that start at 6% or 8% for John Hancock New York, administration fee – 0.15%, mortality and risk fee – 1%, account expenses – 1.35%, operating expenses – range from 0.50% to 1.725%, and the optional stepped-up death benefit – 0.20%. The initial purchase payment can be up to $5M. 

The Bottom Line

John Hancock is a well-established company that will no doubt be fit to make annuity payments long-term, which is true along with the other organizations on this highly vetted list. You might as well save yourself the time and frustration and avoid going to their annuities website as it wasn’t built for the average consumer, seek out advice from a trusted financial professional with regards to their product offerings. If you are up for undertaking their prospectuses then feel free to reach out to them with your request. 

7. New York Life Annuities

Ease of Use

Excellent

Service & Response

Excellent

Features & Tech

Excellent

Pricing

Excellent

New York Life is a powerhouse company from a financial standpoint, and their annuities offerings include fixed, variable, and income.

Pros

  • Received a very favorable “A++” rating from A.M. Best

  • The Premier Variable Annuity offers a mortality and risk fee option based on the premium, and the fee amount doesn’t grow as the account grows

  • Have several fixed annuity products which are targeted towards different segments of the American population

  • Their annuities are presented clearly in their product messaging, and their online fact sheets and guides break down each offering very well 

Cons

 

  • Their fees and charges may be a tad higher than some of their competitors, but that comes in part to the well known successful brand that they have built over the years

Pricing

We break down three of their products below with some of the key numbers. 

 

  1. The New York Life Guaranteed Future Income Annuity II – An initial minimum premium payment of $5,000 is required, and subsequent premium minimums are set at $100. 

  2. Premier Variable Annuity – A $5,000 minimum payment is necessary for the non-qualified, and for the qualified, a $2,000 minimum payment is required. The mortality fee has a range of 1% to 1.3%, fees for various optional riders go up to around 1.20% each, and withdrawal charges start at 8% within a seven-year period of time. 

  3. The New York Life Secure Term Fixed Annuity – The initial minimum premium is $5,000, and for amounts of $3M or more a prior approval is a must. Withdrawal charges start at 7% within a seven-year timeframe, and there are no fees for policy administration or policy maintenance as per is typical with fixed annuity products. 

The Bottom Line

If you’re looking for a sound company with the ability to pay claims, then New York Life is right at the top amongst the best in the annuities industry. Their annuity product mix is strong, and the majority of their offerings can actually be understood by the average consumer thanks in part to their clearly laid out fact sheets and brochure messaging.

8. AIG Annuities

Ease of Use

Poor

Service & Response

Poor

Features & Tech

Poor

Pricing

Poor

AIG is a 100-year-old finance and insurance company that sells many types of products including annuities. Their annuity offering consists of fixed, variable, index, immediate, and deferred income products.

Pros

  • Received an “A” rating from A.M. Best

  • Their wide selection of annuity options is impressive

  • They share many of their prospectuses online

Cons

  • Many of their products have no fact sheets so their annuities are time-consuming to research which makes for a bad first impression 

  • The high number of annuity products is nice, but it also requires lots of dry reads of their prospectuses to get a sense of each product

Pricing

We look at a couple of their annuity products below, a variable and fixed one specifically. 

 

  1. Polaris Preferred Solution Variable Annuity – Qualified accounts pay a minimum of $4,000, with a $500 minimum purchase payment or $100 if done through automated withdrawals. Non-qualified accounts see a minimum purchase payment of $10,000, and the same $500 and $100 setup as above for a minimum subsequent payment. There’s an 8% maximum withdrawal charge with the percentages easing up over a seven-year period of time, and there’s a premium tax of 3.5%. Portfolio operating expenses range from 0.47% to 1.98%, optional benefits for early access is 0.40%, death benefits sees 0.55%, and separate account charges are 1.00% with a $50 fee for contract maintenance unless the value is $75,000 or higher. 

  2. Assured Edge Income Builder Fixed Annuity – The minimum premium is $25,000 and that amount can be added to in the following 60 days. Without prior approval from the company, a maximum total premium is $1M. This annuity has withdrawal charges that begin at 7% and they continue for a period of seven years. 

The Bottom Line

Annuities information on AIG’s website is sparse, and that’s disappointing for potential customers who want to quickly get a birds-eye view of the offerings. Data offered is accessible but not user-friendly from a consumption perspective compared to competing players in the market. They have a wide array of annuity products and their hope is that one of the products will be a fit for you.

9. Allianz Annuities

Ease of use

Excellent

Service & Response

Excellent

Features & Tech

Excellent

Pricing

Excellent

Allianz Annuities has a focus on the retirement planning segment of the market with a portfolio of life insurance and annuity products including a mix of fixed index, variable, and index variable. 

Pros

  • Received an “A+” rating from A.M. Best

  • Their collection of annuities is deep and diverse

  • Long-term care costs are always a concern for seniors, and the Allianz Income Multiplier benefit on fixed index annuities such as Allianz 222 helps to alleviate that stress

  • Stock indexes on some annuity products include S&P 500, Nasdaq-100, Russell 2000, BlackRock iBLD Claria, Bloomberg US Dynamic Balance Index II, PIMCO Tactical Balanced and blended index

Cons

 

  • More annuity products mean more information to sift through, and making a decision becomes more challenging as a result 

  • The company offers a sizeable incentive to sales professionals where they can earn 7.5% commissions on some fixed index annuities in the first year and additional commissions in the years after – it’s great for them financially, but these products may not be in the best monetary interest for customers, and could be unfortunately pushed out of pure agent greed 

Pricing

Below we take a closer look at a fixed index and variable annuity. 

 

  1. Allianz 222 Annuity – This fixed index annuity has a minimum purchase price of $20,000, and it can be added to over the next three years. The surrender fee in the first three years is 10%, and a fee exists for a total of 10 years from the annuity’s initial issue date. 

  2. Allianz Vision Variable Annuity – This product has a minimum purchase price of $10,000 and has a withdrawal fee of 8.5% or more within a seven-year period of time. A positive aspect from a withdrawal fee perspective though is that they are free for up to 12% of the account’s value. Mortality and risk expenses carry low percentage fees. 

The Bottom Line

Premium bonuses are nice and the Allianz 222 Annuity offers a 22% bump in the first 18 months of the contract, but the big catch is that it must be held for at least 10 years. This is a longer-term investment and whoever purchases it has to ensure that they have enough cash flow to take them through that ten-year block of time when their hands are tied on the annuity. This annuity’s withdrawal charges are more than the industry average, and so is the ten-year timeframe. If costs of long-term care is a concern starting in the next ten years and beyond, then this annuity may fit into your portfolio nicely.

10. Nationwide Annuities

Ease of Use

Excellent

Service & Response

Excellent

Features & Tech

Excellent

Pricing

Excellent

 

Nationwide has its tentacles into all sorts of financial services industries including banking, insurance, investment, and most notably for seniors – retirement. The company is deep into the annuities business with ten fixed indexed, seven variable deferred, and one immediate annuity product. 

Pros

  • Received an “A+” rating from A.M. Best

  • Their online product brochures vary from offering to offering but do make an effort to break each one down 

  • Indexes available include P. Morgan Mozaic II index, MSCI EAFE, NYSE Zebra Edge Index and S&P 500

Cons

 

  • Lots of product options are a positive thing in some regards, but making a decision on one annuity can be a daunting task, especially if it’s a time-sensitive matter

Pricing

Nationwide has three categories of annuities, and we look at one from each category below. 

 

  1. Nationwide Destination Architect 2.0 Annuity – Is of the deferred variable product variety and is aimed at investors who are wary of fees. The minimum initial payment is $25,000 and the minimum for subsequent payments is $1,000. The mortality and expense fee is set at 0.20%, and the administrative charge comes in at the same rate. Various riders such as the living benefit rider, for example, can get as high as 1.50%. That’s all of the charges that will be experienced by customers though, which really isn’t too bad at all. 

  2. Income Promise Select Immediate Annuity – The minimum purchase amount is currently at $10,000, and the maximum allowed is $3M. Income payments vary based on certain criteria including your age, sex, premium, income start date, payment option, and payment frequency. 

  3. Nationwide New Heights Fixed Indexed – The minimum purchase starts at $10,000, and withdrawal charges start at 8% during a span of seven years. Numerous optional riders are available for fee amounts that vary. There are fees for mortality and expense, administration, and others, but it’s recommended to speak to your financial professional to get all of the nitty-gritty details. 

The Bottom Line

Nationwide’s selection of annuity products is vast, and their online brochures are easy to skim over to get the pertinent details you need for high-level information about each offering. 

What Is an Annuity?

An annuity is a financial instrument that helps you generate regular income or protects the principal you put into the account and is offered through an insurance company via a contract done by third parties who sell annuities. Long-term care costs are something that many seniors have to accept and deal with, and annuities help cover those when minimal cash is coming in otherwise. 

 

Annuities can also act as a good back up plan for those who don’t have the financial means to purchase life insurance. The main target age group of annuity products are those aged 50 to 80 – gearing up for retirement in the next few years, or those already retired are prime candidates to become annuity clients. 

How Do Annuities Work?

Annuities are actually not considered investments, they are also not FDIC-insured either. They work by clients paying a significant amount of money or a few payments over time to an insurance company. The pay off usually comes a few years down the road or sometimes over ten years when you can then recoup your money, plus ideally, gain more with ongoing regular payouts. 

 

Some annuities start paying out almost immediately after the initial money goes into the account, but many customers wait a few years with different annuity products so they can reap more rewards, but that does come with more risk. Payment amounts can be taken in one lump sum, monthly, quarter, or annually, they vary widely depending on the annuity, and the person’s gender and life expectancy play a part too.

 

Annuities can also be configured so that a beneficiary or beneficiaries are financially paid out when the account holder passes away. As you can see, annuity products can be customized and there are numerous types that can be selected and built on top of with various options. Some annuity types are detailed below. 

  • Immediate Annuity – Incremental payments begin shortly after the insurance company receives your lump sum amount. 

 
  • Fixed Annuity – Principal protection is offered, and the investments are allocated into safe places such as bonds, for example. The interest rate is guaranteed over a fixed period of time, and fees and charges don’t typically exist – just withdrawal or surrender charges must be paid. Tracks the stock market, and a guaranteed minimum rate of return is offered on the vast majority of your principal amount – typically around 87.5%. Gains are capped at a predetermined amount, but gains from the stock market certainly give a nice bump to fixed annuities. For example, if your annuity has a cap of 6% and your chosen index gains 15% – you only get the 6% and don’t get to enjoy that extra 9% increase because of the cap that’s in place. Not all of the principal is protected as previously mentioned, so this type carries risk and money can be lost overall. The downside is usually the smallest available, making fixed annuities very popular for clients to buy.

 
  • Variable Annuities – Can either be deferred or immediate depending on the client’s financial needs. They work by tracking the stock market and the account holder gets to choose which index to focus on depending on what the insurer has for potential options. The rate of return will fluctuate and while payments can be higher, they can also be lower and it’s possible to lose money – the risk has been compared to 401(k) plans. Fees and charges are also a reality of this annuity type, and bad market conditions can dramatically affect payments over time. 

 
  • Deferred Annuity – Payments from this type take a long time before they start to occur, often it’s a few years or sometimes even decades to really maximize on their value

Adding Riders

Riders are options that can be added to an annuity, and benefits can be enjoyed by either the account holder or the beneficiary or beneficiaries when the account holder dies. For each rider that gets added, there’s a percentage fee to undertake, and that reduces the income that goes into the annuity. For maximum income derived from an annuity, riders should only be added if they make perfect sense for the account holder’s specific needs. 

 

Withdrawals or Surrenders

Annuity products consist of a period of time that is either referred to as a withdrawal period or a surrender period – lasting anywhere from two years to ten years depending on the insurance company and specific annuity chosen. The sooner the money gets returned to the account holder the higher the fee is, as much as 10%. There is some relief though as you can typically withdraw money once per year and up to 10% of the amount at no charge. There is also some flexibility if you need to leave your home for a nursing home or are diagnosed with a terminal illness and need your money back, surrender charges are usually waived in those two cases but it depends on the annuity’s conditions in the contract. 

 

Fixed annuities have advantages such as these over a CD where they will uphold financial penalties no matter what reason may come up for wanting the annuity money back early. The rates are often better than CD’s offer as well, and so their benefit equity is typically more attractive to the average potential client.  

 

Surrendering an annuity is when the financial benefits are reaped, the key is to have enough positive cash flow and liquid assets available to make it through the years that represent the surrender period. 

 

Qualified or Non-Qualified

Annuities fit into either the qualified or non-qualified bucket – qualified are purchased with pretax money such as IRA contributions, for example. Non-qualified ones are purchased with after-tax funds. The IRS is something to keep in mind – if money is withdrawn from an annuity before you are halfway through your 59th year of life then a 10% penalty may be charged by the IRS. If a product is picked up that is qualified then income should be handled as regular income from a tax perspective as soon as it starts to be received. There can be subtleties as well, so it’s advised to always seek out the advice from a tax professional for anything that needs to be clarified before a contract is signed. 

 

Commissions

Whoever sells an annuity product is entitled to commissions – they range anywhere from 1% on the low end to 10% on the high end of the annuity’s value. The more simple the annuity is, the less commission gets paid, so fixed annuities, for example, yield less than a higher-risk annuity that has more fees to be paid, and more fine print with lots of conditions.

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