Annuities can be an important part of your long-term retirement savings. In particular, annuities are the only financial product that guarantees an income for your entire life. But, when choosing an annuity, you might be concerned with getting the best and safest annuities. This is often a tricky proposition, but there are some basic guidelines you can follow to ensure that you get an annuity that will help you achieve your financial goals.
The safest annuities come with some form of guarantee. An annuity without a guarantee means that you may lose all of your retirement savings before retirement or even during retirement. Guarantees may be fixed guarantees, such as those found in fixed-interest annuities. However, some variable annuities offer a minimum accumulation guarantee. This type of guarantee ensures that a minimum account balance will be obtained after a specific number of years so long as the insurer is allowed to choose the investment allocation in the annuity and you do not withdrawal any of the funds prior to the maturity date of the guarantee.
In general, the best annuities offer low surrender charges. Low surrender charges mean that you can access your money without paying a penalty on the money you withdraw. A surrender penalty is a penalty paid for withdrawing money prior to the maturity date specified in the contract. These maturity dates may extend for as little as six months to a year or as long as 10 or 15 years.
Does your annuity allow you the option to keep the annuity savings? Some annuities force you to take guaranteed monthly payments in order to get money out of your annuity. The best annuities do not have any forced annuitization (the process of converting an annuity's savings to monthly payments). When annuities are annuitized, you lose access to the savings that was previously in the annuity account.
Can you get your money out of the annuity? The most inflexible annuities have no withdrawal options. Many annuities, however, offer a free withdrawal from the annuity. While 10 percent is common for a free withdrawal, some of the best annuities offer a 20 percent free withdrawal. If your annuity offers you this option, you have increased liquidity over other annuities. Additionally, you may find an annuity with the option of a full withdrawal. This option normally comes with a trade-off. You are given the option to withdraw all of your annuity's account balance at any time, but you must pay for the privilege to do so. This privilege is paid for by using a rider, a modification to the original contract, which permits penalty-free withdrawals of up to 100 percent of the contract's value. However, your investment earnings will be lower than without the rider over time, since you are paying for the rider every year you hold the contract.
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