Everywhere you turn this time of year you will see a Top 10 list. Whether it’s automobiles, restaurants, vacation spots, chocolates or gardening tools, you will find someone willing to guide you.
I don’t think Top 10 lists always work for you, particularly when it comes to retirement security.
Let’s use restaurants as an example of why lists often fail. Unless you have your own jet, a list of Top 10 restaurants in the country won’t help you decide on a site for your anniversary dinner next month. A more helpful list would describe restaurants within, say, 30 miles of your home.
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Or perhaps you prefer Italian. Therefore, information on French, Indian or Vietnamese restaurants is not of much interest to you. Now you’ve narrowed it down to Italian restaurants within 30 miles of your home. But you prefer northern Italian cuisine.
Bottom line, before you start your search for the restaurant, decide what you want in terms of location, cuisine (even region) and, of course, your budget.
For the same reasons, that’s why I don’t do a Top 10 list for income annuity companies.
Income Annuity Companies Top 10 – No Way
Starting with price or income per $1,000 of premium, there are no consistent leaders in the industry. Insurance companies change their pricing as often as weekly and they often have different views of the interest rates they can earn on your premium.
Also, not all income annuity companies offer all forms of these annuities. While most companies offer single-premium immediate annuities, fewer offer deferred income annuities (DIAs) or a special version of DIA for rollover IRAs called a QLAC (which stands for qualified longevity annuity contract). And importantly, not all of these companies are rated A or better, which is my cutoff for credit quality.
So, getting back to the restaurant metaphor, with the kind of Top 10 list that doesn’t reflect your personal preferences, you might find yourself in a low-cost restaurant, miles from home, offering only the exact cuisine you’re allergic to.
Here are three pieces of advice to get you to the best income annuity choice for you.
Customize Your Income Annuity
While you’ve probably tried lots of different cuisines over the years, you may consider an income annuity only a handful of times in your life, such as:
- When you or your spouse retires and need a reliable income stream.
- When you reach 70½ and required minimum distributions (RMDs) begin. Since they are taxed as ordinary income, you’ll want to maximize your income to ensure you have enough to live on.
- When you receive life insurance proceeds.
Of course, the right time to prepare is not around a life event but when you’re calmly creating a retirement income plan.
Whatever the time, you want to customize your search to match your specific and individual needs. To accomplish that, play “what if” games concerning your options.
For example, what if you need income earlier and are willing to pay a higher premium to make that happen? Or does the income continue to your spouse? Or what if you want income to continue to your beneficiaries after your death? What savings source do you use to pay the premium?
Those are some of the questions you need to answer that will determine how much money you spend up-front on an annuity, what your annual payout is, and when payments will begin. Once you have designed an income annuity that best fits your needs, you can shop among insurance companies with the best rate for your choice.
Do It Yourself
You may ask, “How can I do my ‘what if’ research if I’m not talking to the company, an agent for the company, or a broker who represents many companies?”
Our suggestion is to do the work on your own to the extent possible. Agents or brokers, because of human nature, have their favorites, whether it be products, features or insurance companies. You need to avoid those biases wherever possible.
Look for tools that let you research on your own, preferably on an anonymous basis. This enables you to avoid entering any information that would identify you during the “what if” step — not even your name — so you won’t feel pressure from a salesperson as you answer questions about what age you want the income to start and the like.
Select Your Income Annuity Company
The process is not as daunting at it may seem, because there are tools that find the insurance companies that offer the best rates for what you want.
If you are happy with the plan you have designed for yourself, you may then ask for a comparative quote from multiple insurance companies (which will require name, date of birth and similar information). Look for an income annuity shopping service that offers a full lineup of the highest-rated income annuity companies.
These tools usually provide a service to help you apply for the income annuity either through a dedicated sales staff or through a referral to an independent agent. Make sure they fully understand your choices and you feel comfortable they’re handling the paperwork between you and the selected annuity company.
While you’re doing the work, the time you spend now will bring peace of mind later, when you aren’t worried about outliving your savings, no matter how long you live.
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