Alert
Close

Think you know AARP? What you don't know about us may surprise you. Discover all the 'Real Possibilities'

Highlights

Open

Contests and
Sweeps

Dream Vacation Sweepstakes

10 weeks. 10 amazing trips. Seize your chance to win!
See official rules. 

Driver Safety

Piggy bank on the road - AARP Driver Safety

Take the new AARP Smart Driver Course!

PROGRAMS

AARP Foundation Tax-Aide

You can get free, face-to-face tax assistance nationwide.

Money Matters Tip Sheets

Download and print out these PDFs to help with your financial matters.

AARP Books

Visit the Money Section

Enjoy titles on retirement, Social Security, and becoming debt-free.

webinars

Learn From the Experts

Sign up now for an upcoming Money webinar or find materials from a past session. 

Jobs You Might Like

most popular
articles

Viewed

Commented

Does an Income Annuity Make Sense for You?

Possible Solution. The strategy here, one that all annuity buyers should heed, is to make sure the insurance company with whom you are contracting for your annuity is in tip-top financial shape. Look at its marks from the various insurance-company ratings agencies. Even if you can get a better deal from a lower-rated company, for instance, one whose ratings grades look like my grammar-school report cards, don't be penny-wise and pound-foolish.

If you’re thinking of putting quite a bit of money into a fixed income annuity, consider spreading the money around among a few top-rated insurance companies. The  money you have in a variable income annuity is actually held in a variety of mutual funds of your choosing. Since the insurance company is required by law to keep the funds separate from the company’s books, the demise of the insurance company should be of less concern, but the fund values themselves could decline. Even with the protection of your money being held in separate accounts, opt for financially strong insurance companies.

Drawback Number 5: It’s an irreversible financial commitment. After considering all of the drawbacks I have described, you may still be uneasy with what is, after all, a major financial commitment that usually can’t be undone. Certainly, income annuities are not crucial, nor do they need to be acquired in a single purchase.

Possible Solution. Annuities are by no means an essential retirement income tool. If you simply are turned off by any annuity, fine. There are many ways to generate needed retirement income. For example, you can create your own income annuity by investing in dividend-paying stocks, bonds, and other interest-earning securities. Alternatively, you could give an income annuity a test run by initially investing only a portion of the money you might ultimately put into annuities and then deciding later on if you want to purchase more.

“Gradual” is the word. A stage-by-stage approach to income annuities has other advantages besides beginning by investing a reduced amount in an annuity. By waiting to commit additional money to an annuity, you can increase your income considerably. For example, a male purchaser of a $100,000 fixed-payment annuity would receive about $7,800 if he bought it at age sixty-five, $8,900 at age seventy, and $10,500 at age seventy-five. Delaying an annuity purchase can also be advantageous if current interest rates are very low, as they are now.

Since fixed annuity payouts are partially tied to the interest rates prevailing at the time the annuity is purchased, waiting until interest rates have risen can make good sense. Deferring the decision for all or part of the money you may earmark to an annuity also allows you to modify your plans based on your changing financial or health circumstances. Say, for example, that you purchased a small annuity when you retired, with the intention of buying more later. If your or your spouse’s or partner’s health status takes a turn for the worse, you can adjust your annuity choices accordingly. If your health has taken a turn for the worse that could diminish your life expectancy, then you probably don’t want to take out a lifetime annuity.

Topic Alerts

You can get weekly email alerts on the topics below. Just click “Follow.”

Manage Alerts

Processing

Please wait...

progress bar, please wait

Tell Us WhatYou Think

Please leave your comment below.

your money

Discounts & Benefits

Explore Your Learning Possiblities