Should you buy an annuity with some of your savings?
Annuities provide a monthly income for life, similar to the income you get from Social Security. You will usually get you more income from an annuity than from savings invested in stocks and bonds and avoid the risk of outliving those savings. But once you buy an annuity those savings are gone and can no longer be used for anything else.
There are different types of annuities, so know what you want. Key considerations are:
- Security. Assurance that the income will be paid for life is the primary requirement. Insurance companies that sell annuities are regulated, so you should at least get most of the income promised. But be safe and check the company’s rating, call your state Insurance Department, or consult a financial adviser.
- Inflation protection. Do you want an income that a) rises in line with prices; b) rises each year by a set percentage, such as 3%; or c) that remains the same in terms of dollars?
- Survivor benefits. Should you die before your spouse, do you want an income that will continue, either fully or in part (say 50%) as long as your spouse is alive?
- Guaranteed payouts. Do you want an income that either you or your heirs will get for a minimum number of years (say 10)?
- Investments in Stocks. Do you want an income that rises and falls – possibly a lot – based on the performance of the stock market, but will never fall to zero?
- Longevity Insurance. Do you want an annuity that starts at a much older age, say age 85, to ensure you don’t outliving your savings?
If you’re not sure, it makes sense to contact a financial planner to help you decide.
Find the best deal
Prices for similar annuities vary quite a bit. So once you know what you want, check many different on-line and in-person providers.
The best deal is often Social Security:
To “buy” an annuity from Social Security, use your savings to delay claiming and claim a higher benefit when you’re a few years older. Think of the savings you use as the price and the increase in your monthly benefit as the annuity you buy.