Find YOUR Optimal Annuity


Five Rules to Help you Shop for Annuities

1. Limit the amount you’ll invest

Don’t put your entire retirement portfolio into an immediate annuity, because annuities are generally inflexible and illiquid. To determine the right amount, pencil out your fixed expenses in retirement.. Will fixed costs such as your mortgage, insurance, and property tax be covered by fixed streams of income like Social Security and company pensions? If not, consider filling the gap with income from an immediate annuity.

2. Stay under the safety limits

An immediate annuity isn’t guaranteed by the federal government like an insured bank CD. The payments you’ll receive are backed by the company issuing the annuity. So if the firm fails, your income could be jeopardized. State life-insurance guaranty funds do back annuities — but only up to a point. Although their coverage limits vary, the state funds typically cover up to $100,000 in the present value of annuity payments (some go up to $500,000).

To find a safe insurer, you can start your search by checking the companies’ financial-health ratings by outfits such as Moody’s, Standard & Poor’s, Fitch, A.M. Best, or But don’t stop there: While they are offering a snapshot of today’s corporate health, you need to feel secure about payments due 20 years from now. So go to your state guaranty fund’s Web site and learn its coverage ceilings. If your original premium is below the limit, you’ll be safe. But if you want a bigger annuity, diversify among insurers so none of your contracts exceeds the state’s limit.

3. Decide how long you want payments to continue

Immediate annuities can be paid out over your lifetime; over the joint lifetimes of you and your spouse (known as “joint life”); for a set period; or for a guaranteed period, plus the rest of your life. Which option you choose will have a dramatic impact on the size of the monthly payout. As a rule, the shorter the time period, the bigger the monthly benefit.

Take a look at these payout ranges for a 65-year-old interested in a $100,000 immediate annuity. If he wanted payments for the rest of his life, he’d receive $684. If he bought the annuity for his life but wanted to make sure that either he or his heirs would get payments for at least 15 years, the monthly payment would drop to $607. And if he wanted a joint-life annuity to also last for the lifetime of his wife, now 65, the payment would fall to $561.

4. Get inflation protection

This option is worth getting, because the steady drip of even low inflation can eat into your buying power over time. You can buy an annuity that will boost your monthly income each year based on a prescribed inflation rate (typically 3 percent or 4 percent), but a better option is to get one based on the actual change in the Consumer Price Index. Since the annuity issuer will build the cost of this option into your monthly payout calculations, betting on a predetermined rate only rearranges the monthly payouts. By linking the payouts to the CPI, you’ll protect yourself against unexpected spikes in inflation.

5. Shop around for the highest payouts

Just as Nordstrom charges more for a dress than discounter H&M, different insurers charge different rates for immediate annuities. A 65-year-old woman from California, for example, would get $547 per month if she bought a single-life $100,000 annuity from Transamerica, but $589 with USAA, the insurer offering the highest quotes in a June 2009 Consumer Reports analysis. That $42-a-month difference adds up to roughly $10,000 over 20 years — too much to ignore. Once you’ve decided the type of immediate annuity you want (single life, joint life, etc.) and whether you want the inflation feature, call at least three companies or insurance agents for quotes to compare. Bear in mind that insurers with the highest financial-safety ratings often pay out less per month than those with lower ratings. has a list of life insurers with its highest and lowest financial-safety ratings; Consumer Reports Money Adviser found’s ratings the most accurate estimate of insurers’ health during the 2008 downturn.

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