As we’ve discussed before, single premium immediate fixed annuities can be a great tool for retirement planning. They provide a high, predictable level of income for the rest of your life, no matter how long that might be. (Note: Annuities have their drawbacks, too. See the article I just linked to for more info.)
But where is the best place to look for such an annuity? And how should you choose between them?
Where to Get Annuity Quotes
The first place I’d go to look for annuity quotes is Vanguard’s site. To access their quote system, visit their “income annuities” page. Then click the “income solutions” link on the right side of the page.
You’ll have to create an account to use their service. Fortunately, however:
- It’s free, and
- They don’t send you any marketing materials. (At least, they haven’t sent me any, and I created my account several months ago.)
The reason Vanguard’s system is my favorite is that I have yet to find any other websites that offer quotes for annuities with inflation adjustments. If, however, you’re looking for an annuity without inflation protection, a quick Google search will turn up an abundance of websites that provide annuity quotes.
How to Choose an Annuity Provider
To get the maximum benefit from an annuity, it’s important to minimize the risk that your annuity provider goes under before you do. Rather than just choosing the insurance company that offers the highest payout, be sure to take each company’s credit rating into account.
If the website you’re using to find annuity quotes doesn’t provide information as to each provider’s credit ratings, you can look them up online at any of the following sites:
While we’re discussing credit risk, I should note that it’s worth making an effort to stay under the coverage limit of your state’s guarantee association. For example, if your state only provides annuity coverage up to $100,000 and you plan to annuitize $300,000 of your portfolio, it may be wise to buy a $100,000 annuity from each of three different insurance companies rather than buying one $300,000 annuity.
Should You Get a “Fixed Period” Rider?
Some annuities come with a rider that provides for a guaranteed minimum benefit period. For example, if you purchase an annuity that has a 10-year guaranteed benefit period, then you die 4 years after purchasing the annuity, the annuity would pay out to your named beneficiary for the remaining 6 years of that 10-year period.
For the most part, I’d suggest avoiding such riders. The unique benefit to an annuity is that it provides a higher level of income than you can safely withdraw from a non-annuitized portfolio. The more riders you add to your annuity, the lower the payout gets.
That said, the cost of a fixed period rider isn’t terribly high. In many cases, an annuity with a 10-year guaranteed period will provide a payout that’s more than 95% of what an annuity without such a rider would pay. In short, if:
- You think you should be buying an annuity, but
- You can’t stomach the possibility of your money being lost to your heirs in the event that you die the day after you buy the annuity
…then go ahead and get a guaranteed period rider.
Lastly, each company seems to have a (slightly) different mathematical model that they apply to determining the payout for a given annuity. As such, it pays to take the time to shop around and look at many insurance companies before forking over a significant amount of cash to any one of them.