5 key questions to ask before buying an annuity
Retirees looking for a steady stream of income and those wanting to preserve their savings are turning to annuities for help.
Annuities, which are a method of transforming a portion of someone’s savings into a recurring income stream, can deliver on both fronts and protect against dips in the stock market.
“Annuities are an insurance product, and just like all forms of insurance, you are transferring the risk to the insurance company for a fee,” says Jeremy Kisner, senior wealth adviser at Surevest Wealth Management, a financial advisory firm. People are “transferring longevity risk … investment risk and interest rate risk, so in many cases the fees are well worth it.”
With an annuity, an investor buys a contract from an insurance company which guarantees a certain payout over a predetermined number of years. The most common types of annuities are deferred annuities and immediate annuities:
- With a deferred annuity, a person’s money is invested for a set period before withdrawals kick in.
- With an immediate annuity, the payout starts as soon as the first investment is made.
Annuities also can be fixed, which guarantees the same payout or variable in which the payout is tied to the overall stock market or a group of investments.
The complexity doesn’t stop there. As a result, investors have to ask some big questions before investing in any annuity.
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