Before you buy an annuity, you may want to get expert advice. Make sure you understand the possible drawbacks and the benefits.
Five tips for choosing an annuity:
- Avoid buying too young, or leaving it too late. As a rule, the older you are, the more annuity income you get for the same dollars. Why? Because someone who is 75 likely won’t live to get as many payments as someone 10 years younger. It’s a simple fact of life. So, waiting even five years can make a difference in your income. Learn more now. Tip: At the same time, be careful how long you delay buying an annuity. Many companies do not sell annuities to people over the age of 80. You may want to get expert advice before you buy.
- Get a good interest rate. If you buy when interest rates are higher, you’ll get more income for the same dollars.
- Pay only for the options you need. You will get more income if you buy a basic annuity that covers only you. If you add special options, you’ll get less. Don’t buy them unless they are really important to you. Example: You will get less money monthly if you buy an annuity that pays income to your spouse or a dependent child after you die. Only buy this option if they will need the money.
- Don’t pass up options you really need just to get higher payments. Some people focus only on the payment amount they’ll get each month. But it’s just as important to get any options that you really need. Example: You may want to pay for an option that makes sure your income keeps up with rising prices. If you don’t, you could find that your dollars will buy a lot less as the years go by.
- Think carefully before you put all your savings into the annuity. There are always dangers in putting all your savings into just one type of financial product. What happens if you need extra cash quickly for a medical emergency? If all your money is in an annuity, you won’t be able to get the extra money you need.
Remember: Annuities are not simple.
There are a lot of choices to think through. Before you buy, make sure you know how to avoid the common mistakes people make. That way, you’ll get the best deal on a product that’s right for you.
Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.