Tips on choosing and shopping for an Annuity.

The basics: Think of annuities as a retirement account with air bags. Buyers invest a sum of money in a particular annuity, and in exchange, they’re guaranteed a payment for a set number of years, or for life.
They tend to be purchased by people under age 40, people nearing retirement age and professionals who want to protect their assets.

Annuities are investments that provide peace of mind for people who want to protect their lifestyle in retirement and ensure they won’t outlive their savings.

There are two main types of annuities:

* Immediate Annuity- You invest a lump sum, and the insurance company begins sending you regular payments right away. You would decide in advance whether you prefer receiving a fixed amount for life or for a certain amount of years.

* Deferred Annuity-You invest one or more sums with the insurance company years before your retirement date. During these years, your investments have a chance to grow, tax-deferred.
When you reach retirement age (at least 59 1/2), the amount of your payment will depend on the total size of your annuity.

There are three different types of deferred annuities-each with trade-offs and risks:

*Fixed Deferred Annuity-Your lump sum investments are placed in a low-risk asset portfolio and earn a guaranteed annual rate of return until retirement.

*Variable-Deferred Annuity-You invest in stock and bond funds offered by the insurance company that holds your annuity. At retirement, your account can be worth more or less than your initial investment.

*Equity-Indexed Annuity-Your investment mirrors the performance of broad stock index, such as the S&P 500. The insurance company protects against market declines by guaranteeing a minimum return on your investment.

Annuities are a great retirements-savings plan: Unlike a 401(k), IRA or SEP (Simplified Employee Pension), you can contribute as much as you wish; your investment grows on a tax-deferred basis; and you can rest easy knowing you’ll receive payments for the duration of your contract.

But annuities may not be ideal if you already have assets saved that can produce enough income for you and your spouse during retirement.

Consider an Immediate Annuity if:

*You are near retirement age.
*You haven’t saved enough in your retirement plans to provide sufficient income.
*You need steady retirement income in addition to Social Security payments.
*You worry about outliving your savings.
*You have no family to support you if your savings run out.
*You want your spouse to recieve a steady income if you precede him or her in death.

Consider a Deferred Annuity if:

*You are under age 40.
*You are a likely target for litigation by former clients, creditors or a divorcing spouse. Doctors, lawyers and now even financial and real estate professionsal are at risk.
*You want to swap out of a poorly performing annuity or Universal Life Insurance policy. Through what’s known as a 1035 exchange, the IRS allows you to transfer the cash value of one insurance product to another without triggering tax penalties.

If an annuity makes sense for your needs, here’s what you need to consider when narrowing your choice:

*Calculate the payout. How much income are you likely to receive based on the sum you plan to invest?
*Verify returns. Look at how an annuity’s investment returns are calculated.
*Add up the expenses. Find out exactly what you’ll be charged in expenses and fees.
*Explore the death benefit. What will your spouse receive if you die before deferred-annuity payments are due to begin? Consider an extra fee to boost the annuity’s death benefit.
*Size up surrender fees. What will you be charged if you choose to cancel the annuity and withdraw your savings?

Now that you know what you need to look for, get out there and shop!