Advertisement
insurance companies

Why a Top 10 List of Annuity Companies is Not a Place to Start

To find the annuity that's right for you, start by asking yourself a series of "what if" questions.

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.

Advertisement - Article continues below

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.

Advertisement
Advertisement - Article continues below

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.

Advertisement - Article continues below

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.

Advertisement - Article continues below

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?

Advertisement
Advertisement - Article continues below

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?”

Advertisement - Article continues below

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.

Advertisement

About the Author

Jerry Golden, Investment Adviser Representative

President, Golden Retirement Advisors Inc.

Jerry Golden is the founder and CEO of Golden Retirement Advisors Inc. He specializes in helping consumers create retirement plans that provide income that cannot be outlived. Find out more at Go2income.com, where consumers can explore all types of income annuity options, anonymously and at no cost.

Advertisement

Most Popular

11 Dividend-Paying Stocks You Should Think Twice About
dividend stocks

11 Dividend-Paying Stocks You Should Think Twice About

Dividend-paying stocks often can be a store of safety, but 2020 has been difficult on income equities. These 11 picks look like shaky plays despite th…
September 21, 2020
Medicare Basics: 11 Things You Need to Know
Medicare

Medicare Basics: 11 Things You Need to Know

There's Medicare Part A, Part B, Part D, medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare --…
September 16, 2020
Where You Should Invest Now
investing

Where You Should Invest Now

Kiplinger.com senior investing editor Kyle Woodley joins our Your Money's Worth podcast to answer investor questions about tech stocks, the election a…
September 22, 2020

Recommended

Check Your Financial Adviser Now (and Every Year) or Regret It Later
wealth management

Check Your Financial Adviser Now (and Every Year) or Regret It Later

Fewer than 10% of investors use such free background checks as Investor.gov, BrokerCheck or IAPD to check their financial advisers’ backgrounds. These…
September 21, 2020
The Annuity With a Tax-Planning Twist
Financial Planning

The Annuity With a Tax-Planning Twist

A qualified life annuity contract helps retirees with guaranteed payments to last their entire lives.
September 21, 2020
HSA Limits and Minimums
health savings accounts

HSA Limits and Minimums

Annually adjusted contribution limits and other requirements must be met if you're covering health care costs with a Health Savings Account.
September 21, 2020
Don’t Be Paralyzed by Uncertainty
retirement planning

Don’t Be Paralyzed by Uncertainty

You definitely need a plan, because what’s ahead could be scarier than what’s behind us.
September 21, 2020