Annuities For Dummies

By Kerry Pechter

Looking for steady retirement income? Read this book!

Turning retirement savings into a steady income is a big step toward a worry-free retirement. This book introduces you to how to add annuities to your investment mix. It helps you evaluate how to select the best annuities for your needs and steer clear of the worst. You’ll learn how different types of annuities can help you turn your retirement savings into a monthly paycheck, protect your investments from market ups and downs, postpone taxes, stay in your home for the rest of your life, and even buy long-term care insurance for less..

Written by an annuity thought leader who is a frequent guest-expert on webcasts, podcasts and radio broadcasts as well as editor and publisher of Retirement Income Journal, the book offers the knowledge earned from interviews with hundreds of annuity industry insiders on their own turf. Get insight into which annuities do (or don’t) provide near-retirees and retirees with solid value.

• Stretch your savings into lifelong income
• Ask smarter questions when talking to an agent, broker or adviser
• Retire with less anxiety about the market
• Feel more in control of your financial life

Annuities For Dummies is the must-have guide for anyone making retirement plans or managing their retirement savings.

• Language: English
• Publisher: Wiley
• Release date: Jun 14, 2023
• ISBN: 9781394168606

Book preview

Introduction

If you’re trying to figure out how to finance your own retirement and how to make your retirement savings last at least for the rest of your life, you’ve come to the right place. This book is about annuities. And annuities are about retirement income planning.

A lot has changed in the world of money, insurance, and retirement since the first edition of Annuities For Dummies appeared in 2008. But two things have not changed: Most people don’t understand annuities well, and middle-class retirees can’t afford not to understand them.

Annuities are inherently complex, and they’re rarely explained well. Most books on annuities say that annuities are contracts between you and a life insurer, with an accumulation stage where you put money in and let it grow, followed by a payout stage where you receive an income for life.

That definition is a bit misleading. Annuities have evolved into a dozen or so complex, specialized products that, in practice, bear little resemblance to one another. Different annuities are sold for different purposes by different kinds of agents or advisers to investors or retirees with different needs.

In this book, I devote a full chapter to each major type of annuity. You can decide for yourself which of them, if any, can solve the particular financial challenge or risk that you’re facing. Everyone who wants to reduce their financial risk should learn about annuities.

My approach to this topic is as unbiased as it can be, but I do have a point of view. My opinions are based on a quarter-century’s experience in Vanguard’s Retirement Resource Center, at Annuity Market News, and as owner and publisher of Retirement Income Journal. I believe that annuities are best used for safe income, as a supplement to Social Security.

About This Book

If ever a candid, consumer-driven book about annuities has been needed, the time is now.

Millions of Americans are reaching retirement with their 401(k) or 403(b) plan savings, their home equity, and their monthly Social Security benefits as primary sources of income in retirement. Aside from teachers, firefighters, and other public-sector workers, not many are covered by adequate defined benefit pensions.

Long shelves of books have been published on saving and investing for retirement. Many have been written about annuities. Fewer have been written about combining investments and annuities in creative and efficient ways to replace the pensions most Americans no longer have.

As I write this book in 2023, the annuity industry has reached a turning point. After the 2008 financial crisis, the Federal Reserve lowered U.S. interest rates to near zero and kept them low until 2022. Low rates favor the stock market and real estate market but can be toxic for the popularity of annuities.

The bumpy ride of the life and annuity industry over those 14 years deserves a business book of its own. In this updated edition of Annuities For Dummies, I concentrate on the new annuity products and the new life insurers that emerged during that period.

Annuities For Dummies is written and designed for the intelligent nonexpert. Like all For Dummies books, you can read the contents in any order. Its bold headings and icons direct your attention to the essentials. You shouldn’t have to dig very far to find the specific information you need.

Throughout this book, I emphasize that annuities are more readily understood when you recognize their three distinct benefits:

Tax deferral: When you want to defer income taxes on more savings than the government lets you contribute to a 401(k) plan or individual retirement account (IRA), you can put those excess savings in almost any annuity.

Protected growth: When you want to invest for growth while receiving guarantees against losses, you can buy one of several flavors of deferred annuities.

Income for life: When you want to create income during retirement, either right away or in the future, you can purchase immediate or deferred income annuities or deferred variable or fixed indexed annuities with guaranteed lifetime withdrawal benefit (GLWB) riders.

Note: The tax breaks and insurance guarantees associated with annuities tend to complicate matters because they have all sorts of conditions and restrictions. But in this book, I try to keep the bigger picture firmly in view.

Within this book, you may note that some web addresses break across two lines of text. If you’re reading this book in print and want to visit one of these web pages, simply key in the web address exactly as it’s noted in the text, pretending as though the line break doesn’t exist. If you’re reading this as an e-book, you’ve got it easy — just click the web address to be taken directly to the web page.

Foolish Assumptions

When an author sits down to write a book, they try to envision the people — or sometimes a single person — to whom they’re speaking. In the process, they make certain assumptions about that audience. In writing this book, I’ve made a few assumptions that may apply to you:

You’re looking ahead toward your retirement years, and you’d like to make them more financially secure.

You know a fair amount about saving and investing for retirement (perhaps through your employer-sponsored retirement plan), but you know little or nothing about annuities.

You want to participate in the financial decisions that affect you. Even if you leave the details to a financial adviser, broker, or insurance agent, you still want to understand what’s going on and whether your adviser is taking you in the right direction.

You’re a bit skeptical. You’ve heard or read some negative media about annuities, including lawsuits against salespeople or companies that allegedly prey on retirees.

You tend to be a risk-averse investor. You understand that the stock market isn’t just a roller-coaster ride for thrill seekers but also a place where prudent people can take steps to protect themselves against its volatility.

Icons Used in This Book

Throughout this book, you find icons that alert you to especially useful tidbits of information. Here’s a guide to what the icons mean:

Tip When you see this icon, look for useful advice that can probably save you time or money or both!

Remember I try to make each chapter as independent as possible. But occasionally I need to remind you of a fact from another part of the book. You see this icon whenever something bears repeating.

Warning The world of annuities can be like a golf course — full of rough patches, water hazards, and sand traps just waiting to add strokes to your score. This icon points them out.

Technical stuff You can skip this stuff if you want to. I put it here for engineering-minded folks who can’t relax until they can account for every nut and bolt.

Beyond the Book

In addition to what you’re reading right now, this book comes with a free access-anywhere Cheat Sheet that includes tips for deciding on an annuity, being annuities-savvy, and shopping for an annuity. To get this Cheat Sheet, simply go to www.dummies.com and type Annuities For Dummies Cheat Sheet in the Search box.

Where to Go from Here

Feel free to dive into this book wherever the headings catch your interest or wherever the table of contents directs you. If you don’t know anything about annuities yet, definitely read Part 1. If you’re already well versed in annuities, but you want to know more about the people selling them to you, skip to Part 3. Part 4 is the capstone section — it tells you how to combine annuities and investments to maximize a safe retirement income.

Part 1

Making Sense of Annuities

IN THIS PART …

Define annuities and find out why older Americans spend hundreds of billions of dollars on them every year.

Identify the financial risks that don’t appear until we retire.

Preview the applications, contracts, and suitability forms you’ll need to fill out.

Weigh the pros and cons of the various types of annuities.

Decide if you’ll be a green zone, yellow zone, or red zone retiree.

Chapter 1

The ABCs of Annuities

IN THIS CHAPTER

Bullet Understanding annuities

Bullet Learning the major types of annuities

Bullet Noting the reasons why people buy annuities

Bullet Recognizing the life cycle of all annuities

Like millions of Americans, you’ve probably purchased stocks, bonds, or mutual funds. All those investments involve risks. You may be less familiar with a type of product that can reduce those financial risks, especially for people in or near retirement.

Those risk-reducing products are called annuities.

Of course, annuities aren’t quite that simple. Most annuity brochures and prospectuses contain enough disclaimers, footnotes, and contingencies to keep a dozen lawyers busy. And the tax features of annuities keep a lot of accountants busy, too.

But it’s useful, at least at first, to set aside the complexities of annuities and take a high-level snapshot of what they are and how they work.

If investing is like walking a tightrope and insurance is like a safety net, annuities are both the tightrope and the safety net. They involve risk and guarantees at the same time. Annuities won’t return as much as pure investments can, all else being equal — but they’re not as risky either. If you’re in or near retirement, you may find such a trade-off appealing.

In this chapter, I provide an overview of what annuities are, what they do, how they work, who should buy them, and so on. In later chapters, I dig down into the details. Throughout the book, I also share my own opinions about annuities, based on my experience in writing about the products and the industry that produces and sells them.

Getting Acquainted with Annuities

To a list of life’s mysteries — the curvature of space-time, for instance — I would add annuities. Hardly anyone understands them. That’s a shame, because annuities can bring stability to our financial lives during retirement, which is arguably when we need it most.

Part investment, part insurance

Annuities differ from other financial tools in several important ways. With investments, you may buy stocks, bonds, or mutual funds through a broker. You hope that in the near or distant future you can sell them for a profit. The risk that you may lose money is on you.

With annuities, you’re buying a type of insurance policy or contract. You transfer money from one of your existing accounts (or from another annuity) to a life/annuity company. The life insurer invests the money and assumes certain risks on your behalf.

Some contracts offer a guaranteed or minimum gain over a certain number of years. Other contracts help your money grow until you retire, with an option to convert your savings to income at some point. Still others help you turn savings into income right away.

Remember In this book, you see references to life/annuity companies, life insurance companies, and life insurers or carriers. These are all the same kind of entity. This book focuses on the annuity businesses of life insurers.

Deferring taxes

Investments and annuities differ in the way the federal government taxes them. When you buy mutual funds and hold them in a traditional brokerage account, the fund distributes or reinvests capital gains, dividends, or interest on which you owe income tax each year.

When you buy an annuity, you pay no taxes on the annual gains until you take the money out (after age 59½, there’s no 10 percent IRS penalty tax on withdrawals). More money stays in your account, so it can grow faster. In that respect, an annuity is a bit like an individual retirement account (IRA). I delve into the tax benefits of annuities in Chapter 18.

The types of annuities that most people buy today are usually long-term tax-deferred investments with protections against loss. Relatively few people buy annuities solely for monthly income in retirement, and only a minority converts investment-style annuities to retirement income.

Tip The different types of annuities are so different from each other (despite several similarities) that I recommend approaching them as distinct products. Different types of annuities are sold by different kinds of agents or advisers to different kinds of clients for different purposes.

Technical stuff Annuities are often sloppily described in the media. The media typically defines them as ways for people to create guaranteed retirement income that starts right away (immediate annuities) or after an accumulation period (in the case of deferred annuities) and in the form of either steady or fluctuating payments.

This definition makes it sound as if every annuity ends up as guaranteed income in retirement. That’s like saying that all eggs grow into chickens, instead of getting fried, hard-boiled, poached, or added to cakes long before then. Most annuity owners use them for the benefit of tax deferral and to protect their savings from loss due to market volatility.

WAIT, DID SOMEONE SAY CONTRACT?

Yes, buying an annuity means filling out an application, which, if approved, is followed by the signing of a contract. Like those endless software contracts online, annuity contracts can be long, hard to understand, and printed in a font size that strains the naked eye.

The application will acquaint you with the terms of your annuity. It will also require you to make certain decisions about how you’ll fund the annuity, how you want your money invested, and when you want your money back.

Hundreds of thousands of dollars are typically transferred in annuity transactions. Signing your name to the application and/or contract can be scary. But the thought of losing a chunk of your retirement nest egg in a market crash can be scarier. That, along with the tax deferral, is why people buy annuities.

THREE ANNUITIES IN ACTION

Let’s bring this discussion of annuities down to earth with a few concrete examples. Consider these common financial situations:

Imagine that you’ll need exactly $50,000 in five years, and you can’t afford to lose any of it between now and then. You can take $43,000 or so from savings, buy a five-year contract, and receive a guarantee that it will compound by 3 percent or 4 percent each year for the next five years (depending on current interest rates) with no taxes on the annual gains during that period. After five years, you’d have $50,000. Guaranteed. That’s an investment-oriented, fixed deferred annuity.

Or imagine that you’re 70 years old and you’ve saved enough money to cover your essential expenses for the next 15 years but not for 20 years or longer. You can buy an annuity that pays you an income starting next month and lasting as long as you live. Alternatively, you can, with a much smaller premium, buy an annuity whose payments start only if and when you reach age 85. That’s a single premium immediate annuity (SPIA) and a deferred income annuity (DIA), respectively.

Or imagine that you’ve contributed the maximum amount to your defined contribution plan or IRA, but you’d like to save more every year for retirement in a tax-deferred account whose value may fluctuate (upward, you hope) over time. You can put that money in an annuity and let it compound tax-deferred indefinitely. That’s a deferred variable annuity or a structured variable annuity.

Recognizing the Most Popular Annuities

Many books and articles describe annuities as having two stages. In the first stage — the accumulation stage — you contributed to the contract, as you would to a bank account. In the second stage — the income stage — you converted your contributions to a monthly income in retirement.

Long ago, these two stages became decoupled and evolved into two distinct types of annuities:

Deferred annuities, which are contracts that stay in the accumulation stage indefinitely, with the assets growing tax-deferred

Immediate annuities, which are contracts that skip the accumulation stage and start paying out monthly or quarterly income shortly after the owner makes a large, lump-sum investment

Each of these two types evolved further. Depending on the type of deferred annuity you bought, your money can accumulate at

A fixed rate (if the insurance company invested your money in bonds)

A variable rate (if it was invested in the insurance versions of mutual funds, often called subaccounts)

An indexed rate (if returns were linked to a market index)

If you bought an immediate annuity, on the other hand, the level of monthly or quarterly income can be

Fixed (if the money was invested in the insurance company’s bonds)

Variable (if the money was invested in subaccounts)

Over the years, certain types of annuities have become more popular than others. Deferred variable annuities were the most widely sold from the 1990s up until about 2010. Since then, sales of index-linked annuities have become more prevalent.

In the following sections, you find thumbnail portraits of the annuities most commonly purchased. In Part 2 of this book, I devote a chapter to each.

Savings account annuities

When people simply need a safe place to grow a large sum of money for a few years, or if they’re saving for a specific need — a planned wedding, a down payment on a house or car — they may buy a certificate of deposit (CD) at a bank.

Some annuity contracts outyield CDs because life insurers typically invest in long-term corporate bonds that may offer higher returns. These annuities are called fixed annuities, fixed-rate annuities, multiyear guaranteed annuities (MYGAs), or even plain vanilla annuities. Your money can grow for terms of up to ten years. You can find out more about these types of annuities in Chapter 6.

Pension-like annuities

If you don’t have a company-paid annuity (a traditional defined benefit pension) to rest your weary head upon in retirement, you can buy a pension-like stream of income from a life/annuity company. The most common names for this type of annuity are: an income annuity, an immediate annuity, or (if you’re into the whole brevity thing, as the Big Lebowski said in the Coen brothers’ film) a SPIA.

Options-based fixed indexed annuities

The first fixed indexed annuities (FIAs) appeared in the mid-1990s. These contracts generate earnings for their owners when an equity stock index such as the S&P 500 Price Index rises in value.

Their original name, equity indexed annuity, was changed to fixed indexed annuity in 2007 to clarify their identity as an insurance product, not a security. As I discuss in Chapter 8, FIAs rely for growth on the purchase of options rather than on bond yields or on increases in the value of equity shares.

In 2021, the first fixed index-linked annuity (FILA) appeared on the market. It offers investors a chance for higher gains than they might receive from an FIA. Investors can lose gains that their accounts have already achieved, but their principal remains protected from loss.

Registered index-linked annuities

In 2011, a new kind of annuity was born. Variously called registered index-linked annuities (RILAs), structured variable annuities, or index-linked variable annuities (ILVAs), these contracts bear a resemblance to FIAs. Both rely on the purchase of options on equity (or blended-asset) indexes. A big difference: You can lose principal when you buy a RILA.

Because of that risk, sales of RILAs are regulated by the U.S. Securities and Exchange Commission rather than by state insurance commissioners. More an investment than an annuity, a RILA typically offers higher potential gains than an FIA while also using floors and buffers for partial protection from loss. You can find details on RILAs in Chapter 9.

Traditional variable annuities

At the peak of the 2010–2020 bull market, Americans had $2.5 trillion invested in mutual fund–like subaccounts in deferred variable annuities. When you contribute to a variable annuity, your money goes into a separate account with your name on it, rather than into the insurance company’s general fund.

Starting decades ago, wealthy investors bought vast amounts of variable annuities, where their after-tax savings can grow untaxed until withdrawn. Between 2005 and 2015, older investors bought mountains of variable annuities with guaranteed lifetime withdrawal benefit (GLWB) riders. These riders enabled retirees to lock in a minimum level of retirement income without locking themselves out of access to their own money. You can find out more about the benefits of these types of annuities in Chapter 10.

Deferred income annuities

DIAs are sometimes called longevity insurance. They’re intended to provide income that doesn’t start until mid- or late-retirement — at age 75, 80, or (at the latest) 85 — rather than at the beginning.

Compared with income annuities that pay income starting at age 65 or 70, these late-life annuities cost much less but still address your risk of outliving your savings. DIAs have a close cousin called qualified lifetime annuity contracts (QLACs) that have important tax features. Chapter 11 has more details on both.

Age-in-place annuities (also known as reverse mortgages)

Many Americans say they would like to live in their own home throughout retirement. But many elderly people feel pressure to sell their homes to generate cash to live on. A reverse mortgage lets you borrow against your home equity and stay in your home.

You can take that loan as a lump-sum payment, as an annuity that delivers income for as long as you live, or as a home equity line of credit for cash during emergencies. The reverse mortgage helps you maintain your home and pay your property taxes. The loan isn’t repaid until you pass away or sell the home. I explain reverse mortgages in Chapter 12.

THE ALPHA OF ANNUITIES

When you buy an annuity for lifetime income, you throw your money into a pool with money from thousands of other annuity owners your age. This is longevity risk pooling. Social Security and corporate defined benefit pensions are based on the same principle.

With these annuities, an insurance company puts the money into its own interest-bearing account. All owners then take an annual income from that pool for as long as they live. This insures them against the risk of living long enough to run low on money in retirement. Your income from this type of annuity will come from a combination of three sources:

Your contribution to the pool

Interest earned on your contribution to the pool

Money left in the pool by fellow annuity owners who have died (also known as the survivorship credit or mortality credit)

In purchasing this type of contract, you agree that

If you die early, you may not receive as much as you put in.

If you live exactly to your life expectancy, you’ll get back about what you put in.

If you live well past your life expectancy, you’ll get back much more than you put in.

In buying a life annuity of this type, you’ve purchased income for life at the price that a person who lives to the average life span (average for annuity buyers of your age and gender, but not necessarily for the general public) would pay.

You can customize your income to last for a minimum number of years, or to last as long as either of two people are living, or to provide your beneficiaries a refund if you die before getting back all of your initial premium. In Chapter 7, I go into greater detail.

Fewer people buy this type of contract than buy deferred annuities, for a variety of reasons. But I give priority to income annuities in this book because they’re the only true annuities. Only life-contingent income annuities offer survivorship credits. They can help boost your income in retirement.

Reasons for Exploring Annuities

A book about annuities is, by nature, a book about financial planning for retirement. If you’re in your 50s, 60s, or 70s, annuities can help you

Save for retirement with less risk of loss

Enter retirement with less exposure to a market crash

Live in retirement with less fear of running low on money

Here are the main reasons why people buy annuities, roughly in order of importance (for more on this topic, see Chapter 4):

Retirement income: Annuities were built to provide income, especially income that lasts for as long as you live. Life/annuity companies are good at calculating the average life expectancies of large groups of people. This helps them forecast death rates and to set fair prices for life insurance and annuities. Several kinds of annuities can provide retirement income.

Tax deferral: Money compounds faster when gains aren’t subject to end-of-year taxation. Over many years, the difference in growth rates between money in taxable and tax-deferred accounts can be substantial. People in high tax brackets often buy deferred annuities because they can contribute virtually any amount of nonqualified money (money on which they’ve already paid taxes) to the contract and defer taxes on the gains until they take withdrawals. For more on taxation of deferred annuities, see Chapter 18.

Protected growth: Certain investment-style annuities offer opportunities for growth along with protection against loss. One type of fixed deferred annuity offers guaranteed rates of return and a guarantee against loss. Indexed annuities offer a chance for growth and either partial or complete protection against loss. That makes them popular as savings tools for people — especially those nearing retirement — who don’t feel that they can afford to take a loss.

A desire to age in place: Reverse mortgages convert home equity to income that’s based on the life expectancies of the borrowers. Two groups of people should take an interest in reverse mortgages:

Middle-class retirees without much savings but with substantial home equity

Affluent people who can use the advantages that reverse-mortgage home equity lines of credit may have over conventional home equity lines of credit

See Chapter 12 for more details on reverse mortgages.

Future medical expenses: Many annuities come with special clauses or riders that enable the owner to access, or to accelerate their access, to their money if they’re disabled or confined to a nursing home. Certain fixed deferred annuities are designed to let the owners buy high-deductible, low-cost long-term-care insurance.

Charitable giving: Certain annuities allow you to combine your wish to leave a bequest to a charity, receive a tax deduction for the gift, and provide monthly retirement income for yourself. For instance, you can give money to a charity (and get a tax break) and then receive an income from the charity until you die. Or, you can buy an annuity for yourself that, at your death, pays any money left unpaid to a charity.

Womanhood: Although their mortality rates have been converging, American women still live longer than American men on average. Visit any nursing home, and you’ll see that women far outnumber men. Because those who live longest benefit most from income annuities (as they do from Social Security), women in general are good candidates for annuities.

ASKING YOUR FINANCIAL ADVISER ABOUT ANNUITIES

You may wonder, Why doesn’t the author just tell us to visit our investment adviser or insurance agent and ask them which annuity to buy? The short answer is that every adviser or agent may recommend a different annuity or none at all. Not every intermediary (adviser or agent) will know much about annuities. Most intermediaries specialize in either investments or annuities, not both. Few are ambidextrous advisers, as I put it. So, it’s wise to know a bit about annuities before you consult a professional.

Warning Your annuity’s safety depends on the life/annuity company’s financial strength. The company’s strength is its ability to pay you back, as measured by the depth of its reserves and surplus. Every insurance company receives ratings for financial strength from the major rating agencies (AM Best, Fitch Ratings, Standard & Poor’s, and Moody’s). Each company also has a Comdex rating, which combines the agencies’ ratings into an overall score on a scale of 1 to 100.

The Life Cycle of All Annuities

Every annuity has two potential phases: accumulation and income. During the accumulation phase, you put money in the account (paying all at one time or making a series of payments), and it grows tax-deferred. During retirement, you initiate the income stage by converting it to an irrevocable income stream.

In practice, as I mention earlier in this chapter, it usually doesn’t work that way. Most people who buy deferred annuities never formally convert them to income; they just take withdrawals during retirement or leave the money to their beneficiaries. Others buy immediate annuities after age 59½ and start receiving income right away.

The following sections describe an overview of the life cycle of most annuities (I’ve added a purchase stage to show the initial steps in acquiring an annuity).

The purchase stage

When you begin to make concrete plans for your retirement, you may

Meet with a trusted agent/broker/adviser to explain your needs.

Give them time to research the annuity products available in your state.

Study the various prospectuses or brochures your broker obtains from the wholesaler, broker-dealer, or life insurer, and then choose the product that best suits you.

Decide whether to use after-tax savings or IRA savings to pay for your annuity.

Fill out an application.

If it’s a deferred variable annuity, choose the subaccounts (similar to mutual funds), riders (options), and services you want. If it’s a DIA, set an income start date.

Wait while your application is submitted to the insurance company for approval.

If approved, you’ll get a contract.

Sign the contract and provide a check for the initial purchase premium.

Use the free look period to review and confirm or reverse your purchase.

Tip The internet has made it easier to learn about and buy annuities. The law still requires you to work with someone who has a license to sell insurance products in your state, and you’ll still need to sign a contract (with either a handwritten or e-signature). But you can educate yourself before you talk to an agent or adviser.

Some annuity websites ask for your name, email address, phone number, and perhaps your age and household wealth before sending you information. If you comply, expect a call from an insurance agent. Chapters 15 and 24 have more information about the internet and annuities.

The accumulation stage

This stage lasts from the time you buy a deferred annuity until the time you cancel the contract or convert it to retirement income.

If it’s a deferred variable annuity, you can make periodic contributions and change your investment mix.

If it’s an FIA, you may be able to adjust your crediting rates or index choices at the end of each crediting interval.

If it’s a savings-style fixed annuity, you receive a yield that the life/annuity company can change each year. If it’s a MYGA, the rate stays the same for the entire term.

If you take withdrawals during this period, they may be subject to a surrender charge, a market-value adjustment, income tax, and a 10 percent federal penalty tax if you’re under age 59½.

The income or distribution stage

This stage starts after age 59½, when you retire. You may

Take withdrawals from your deferred annuity as needed without converting the assets to a guaranteed irrevocable income stream.

Exercise your GLWB rider, if you purchased one, to receive a guaranteed income for life while maintaining access to your money.

Begin taking monthly, quarterly, or annual income from your income annuity, if you have one.

RECOGNIZING LIFE/ANNUITY COMPANY DIFFERENCES

Not all annuity issuers are alike. Different insurers specialize in different types of annuities. They sell their contracts through a variety of agents, brokers, or advisers. Life/annuity companies vary in size, financial strength, and quality of customer service.

Some life/annuity companies are stock companies (owned by shareholders) and some are mutual companies (owned by policyholders). Some are subsidiaries of giant holding companies. Others are affiliated with investment companies that deal in private equity, private credit, or alternative assets.

Years ago, many life insurance companies employed armies of career agents to represent their products. Although some mutual life insurers still employ these captive forces, more insurers now reach the public through insurance marketing organizations, broker-dealers, and banks.

Independent agents and advisers can recommend any annuity they believe will be suitable for you and in your best interest. In practice, they may steer you toward their list of preferred products or carriers or to products that pay them a higher commission. (See Chapter 14 for more on working with intermediaries and Chapter 23 for questions to ask before you sign anything.)

Technical stuff Putting money into an annuity is relatively easy. Getting money out may be conditional. Annuities are more sticky than pure investments for several reasons. Life insurers need long-term commitments from you in order to give you long-term guarantees — like a fixed interest rate for a specific number of years or a certain income for the rest of your life.

Remember Annuities are insurance-and-investment hybrids. They can provide tax advantages, protected investment growth, and guaranteed lifetime income. Near-retirees and retirees can use annuities to bring certainty to one or more aspects of their financial lives.

SOLVING AN AGE-OLD OLD-AGE PROBLEM

Because none of us knows how long we’ll live, we