Start with the Basics
Annuities can be complex, and it is easy to get bogged-down in product details that are difficult to understand.
While product details are important, it makes sense to start at a more general financial planning level and then progress towards product details and a potential purchase. An annuity purchase decision should be deliberate and drawn-out over many years if need be—there is absolutely no need to rush into what is a very important financial decision.
The following is a list of the basic questions that need to be answered—roughly in the order that they appear—before making an annuity purchase:
- Whether to buy: the reality is that annuities are not for everyone.
- Why to buy: what are my financial needs and how might an annuity fit into the picture.
- When to buy: the timing of a purchase can be critical.
- How much to buy: what amount of my financial assets should be dedicated to an annuity.
- Who to buy from: the companies and people who manufacture, market and sell annuities.
- What type to buy: the product types, product features, etc.
The key to answering these five questions is having a handle on what your retirement income and spending needs are, and the way to define these needs is through a good financial plan.
Take Away 1: When starting to consider and research annuities, worry less about product details and much more about developing a good financial plan and finding a good financial advisor.
Take Away 2: It is virtually impossible to make an informed annuity purchase without having a solid financial plan.