Smart Annuity

How To Buy Annuities

Yes, it is important to understand annuity is not a standardized product, and it pays to spend time to compare and shop.

Not all annuities are created equal. Fixed annuities offer a set rate of return. Variable annuities' return is based on the performance of investments in the annuity's portfolio.

Equity-indexed annuities typically offer a blend of both: A minimum fixed rate of return plus a variable rate based on the return of a particular stock index. This gives you a guaranteed return, combined with a chance to capture the index's market gains. But know that your return may be capped at less than the index's performance. Read more on the SEC Web site.

You can buy fixed or variable annuities that are deferred -- that is, you're putting money aside for a future date -- or you can buy fixed or variable annuities that are "immediate," where the insurance company turns your lump sum into a monthly income stream.

That monthly payout is a valuable tool to ensure a guaranteed level of income through retirement, but annuitizing your money generally means giving up control of that lump sum.
To add to the confusion, many annuity products now offer a variety of add-on features. For instance, you can buy a guaranteed monthly income stream without annuitizing, and thus keep control of your money. But these features will cost you extra.