1) Take your time – an annuity purchase is a huge decision. There is no need to rush into the decision the moment you retire. In fact, the time of retirement is probably a bad time since there are so many other things taking place with the transition.
2) Be aware of and understand the incentives behind the information that is being provided to you. This applies whether you are working with a financial advisor from Goldman Sachs or an independent insurance agent. Awareness of the incentives that drive the sales process will help you avoid many of the pitfalls that accompany the annuity buying process.
3) Protect yourself from longevity risk. Having some protection from outliving your assets will let you enjoy retirement and worry less about money. Longevity insurance will also allow you to be more aggressive investing remaining savings.
4) Develop and maintain a financial plan that focuses on sustainable retirement spending. You must determine what amount of retirement spending results in a tolerable level of longevity risk.
5) Shop around to gather as much information as possible – seek second and third opinions.
6) Only buy from a reputable company with the highest financial ratings.
7) Consider finding a financial advisor who is a fiduciary and works on a fee-basis.
8) Consider laddering annuity purchases over time to protect against credit risk and, to a lesser extent, interest rate risk.
9) Make sure that you need the “bells and whistles” that come with some of the more complicated and expensive products. The need should be driven by risk management considerations and the desire to have the insurance protection that many of these features provide.
10) Risk management should be on an equal footing with investing during retirement. Risk management ranges beyond annuities and includes health insurance and long-term care insurance.
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