How to choose an annuity: if carefully constructed, an annuity can be an important part of your retirement plan—but they're not right for everyone

Black Enterprise, July, 2004 by Aissatou Sidime, Jeffrey McKinney

step 4

Get a broker salesperson to provide comparative data. For fixed annuities, compare how long you would pay surrender penalties, starting dates of surrender penalties (at signing of contract vs. when each deposit is made), percentage of guaranteed return, length of guarantee, typical rates at renewal, and financial rating of insurance company (limit choices to ratings of A and above). For variable annuities, also look at annual insurance fees (often labeled M&E charges) and annual management charges for the portfolio.

step 5

Pick the cheapest annuity with the best guarantees based on the investment goal identified in Step 3. Fixed annuities usually charge about $30 a year in administrative fees. For variable annuities, those fees are built into M&E charges.

step 6

After the surrender period has ended, review annuity terms against newer annuities. Most insurance companies deduct a surrender penalty if you switch before the surrender period ends, except when the owner begins receiving annuity payments. You can switch between annuities without paying federal tax penalties by filing Form 1035 with the IRS.

step 7

When you're ready to start taking annuity payments, shop around for the best annuity payment plan--which could very well be the annuity you're with.