Mistakes to Avoid When Shopping for Annuities¹ ²

The right kind of annuity can help you achieve your investment and retirement goals. An annuity can provide you with a steady, consistent income that’s better than other retirement products. Most annuities last for your lifetime, so you don't outlive your savings.

If you’re planning to include annuities in your financial strategy, it’s important to know the most common mistakes that you need to avoid. Many people often make big annuity mistakes, which ends up being their worst financial decision. This is the reason why annuities have gotten a bad rap in the past. With that in mind, here’s a look at six mistakes to avoid when purchasing annuities.

Choosing the Wrong Annuity

Similar to insurance, there are different annuities: immediate, deferred, fixed, and variable annuities. Different annuities have different fees, features, and degrees of risk. With each choice comes a set of pros and cons, so choosing the right annuity is crucial.

For risk-averse individuals, investing in variable annuities is a huge mistake. These annuities are appropriate for people who can cope with market fluctuations. If you’re a conservative investor, fixed-rate annuities offer stability and a guaranteed interest rate.

When shopping for annuities, know the target audience for each type. Learn as much as you can about your choices to avoid losing much of your money.

Choosing the Wrong Insurance Provider

Annuities are typically purchased from insurance providers. Since this is considered a long-term investment, you need to get annuities from reliable companies. Choose insurance providers with a solid financial strength rating of “A” or better. These A-rated insurers are financially stable and can fulfill annuity obligations to their clients. Otherwise, you’ll end up getting lower returns on your annuity.

Investing Too Much Money

Like any other investment, you should not put all your eggs in one basket. Annuities are a great source of guaranteed lifetime income, but they come with inflation risks. They also offer limited liquidity, which means you have limited access to your funds. 

As a general rule of thumb, you can allocate 5% to 20% of your assets to annuities. This allows you to spread your wealth and reduce the risk of loss. Instead of putting too much into annuities, diversify your portfolio by investing in a mix of stocks, bonds, and real estate.

Not Understanding How Annuities Work

Annuities are a complex topic that you might not be familiar with. Some types of annuities are straightforward while others are hard to understand. If you don’t understand it, don’t invest your money in it. 

Buying annuities without understanding how they work can only lead to financial struggles. Other potential consequences include missed investment opportunities and capital loss. 

To get up to speed with the ins and outs of annuities, an insurance agent can help. Professional agents are knowledgeable when it comes to the intricacies of annuities and other financial products. They can help you evaluate your options and guide you as you make an informed decision.

Not Paying Attention to Fees

Just like other investment products, annuities come with administrative fees and surrender charges. Some types of annuities like variable annuities have high fees. These fees and charges might lead to diminished investment returns over time. 

Before you purchase annuities, pay close attention to the fees associated with it. Focusing on potential returns without considering the associated costs is not a good practice. Carefully review the fine print and compare fees across different insurance providers. 

Failing to Shop Around

The only way to find a suitable annuity for you is to shop around. We recommend comparing annuity rates and payout options from different providers. Evaluate at least three insurance providers to make sure you’re getting the best deal. As much as possible, look for an insurance company with the most competitive rates. If you fail to shop around, you may miss out on finding annuities with higher returns and more favorable terms.

The Bottom Line

Annuities can be confusing, but having an insurance agent by your side can make all the difference. At Integrity Wealth, we are committed to helping you achieve your retirement goals. By utilizing our industry knowledge and expertise, we simplify annuities and make them more accessible for you. Our goal is to provide annuity products that fit best with your financial goals. Don’t hesitate to call us today for more details.

Disclosures

*This blog contains general information that may not be suitable for everyone. The information contained herein should not be construed as personalized investment advice. There is no guarantee that the views and opinions expressed in this blog will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.  Integrity Alliance, LLC does not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstance.  Past performance is no guarantee of future results.

¹Fixed Annuities are long term insurance contracts and there is a surrender charge imposed generally during the first 5 to 7 years that you own the annuity contract. Indexed annuities are insurance contracts that, depending on the contract, may offer a guaranteed annual interest rate and some participation growth, if any, of a stock market index. Such contracts have substantial variation in terms, costs of guarantees and features and may cap participation or returns in significant ways. Investors are cautioned to carefully review an indexed annuity for its features, costs, risks, and how the variables are calculated. Any guarantees offered are backed by the financial strength of the insurance company. Surrender charges apply if not held to the end of the term. Withdrawals are taxed as ordinary income and, if taken prior to 59 ½, a 10% federal tax penalty.

²Please consider the investment objectives, risks, charges, and expenses carefully before investing in Variable Annuities. The prospectus, which contains this and other information about the variable annuity contract and the underlying investment options, can be obtained from the insurance company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

The investment return and principal value of the variable annuity investment options are not guaranteed. Variable annuity sub-accounts fluctuate with changes in market conditions. The principal may be worth more or less than the original amount invested when the annuity is surrendered.