Which equity indexed annuity is the best? Which annuity is the best for you? Often individuals become overwhelmed by the amount of choices available when learning about, and selecting the best annuity for their purpose. I believe those who are over 50 should have a majority of their retirement assets in safe, protected and guaranteed retirement planning vehicles. The key investment piece is the Equity Index Annuity. Equity Index Annuities may be referred to as fixed index, index, or hybrid. Equity index annuities are NOT variable annuities. Learning annuity vocabulary, and more importantly, understanding the key components of an annuity will significantly allow your selection process to be more efficient and effective. To assist clients in this process, I have identified 9 common and key components I regularly evaluate:
- What do you want? Annuities have tremendous flexibility and variety. Most Equity Indexed Annuities are built very similarly, yet there are subtle differences that make certain contracts more favorable than others based upon the purpose of the client. These differences don’t make one contract better or worse than another. Ask yourself, what is most important to me, growth, distribution, income doubler, long term care benefits?
- Strength of company. Look at ratings, solvency, and history to determine which company is best suited for you.
- Issue age. Your age is a very important factor because different contracts are available for different ages.
- Contract length. Again, what is the purpose and goal? When do you want to annuitize? Are you comfortable with the surrender schedule listed in the contract?
- Bonus. Many contracts offer a bonus for entering into the contract. Is the biggest bonus the best option? What if there is no bonus? How does the bonus work?
- Income Rider. An income rider may or may not be attached to the annuity contract. Often times the income rider is referred to as the roll-up or the percentage of growth the insurance company will guarantee each year until the income value is annuitized. There are certain variables with each company’s income rider. Be sure to focus on the sum of the key variables (bonus, roll-up rate, caps, distribution rate, etc)….not on an individual basis [example – a large up-front bonus can be meaningless if on contract with a low distribution rate and a long surrender schedule].
- Cost. It is important to differentiate between a variable annuity and an indexed annuity. Typically there are no fees associated with an equity indexed annuity contract itself. Typically, there are several riders that are free to the client. The Income Rider does carry a cost. The expense of this rider may vary, and its cost should be closely evaluated to determine its true value.
- Caps. There are many crediting options with each annuity contract. Your intentions again play a part in determining how important this feature is.
- Distribution Rate. At what rate will the assets of the annuity be distributed over a lifetime? This becomes a key component of planning for individuals, again based upon specific need as well as their age.
There are choices when selecting the best annuity for your purposes. The evaluation process can seem daunting at first, but it becomes much easier once you understand the terms and see how the core variables interact with each other. If you need help, be sure to seek out an independent retirement planner licensed in your state.
To see my list of top 5 equity indexed annuities, call me at (303) 749-5853 or email to firstname.lastname@example.org.
To learn more from this annuity professional, click here (Richard Ericson).
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