Senior Resources » How to Choose the BEST Annuity in 5 Simple Steps

How to Choose the BEST Annuity in 5 Simple Steps

annuity art

An annuity is a popular investment vehicle that can provide guaranteed income during retirement. However, with so many different types of annuities available, it can get pretty confusing, pretty fast. Which one is right for you? In this guide, we’re going to cover all the basics of each type of annuity and explore some key factors to consider when making your decision.


If your search has brought you here, you’re already taking an important step toward securing your financial future. Here’s everything you need to know!

Step 1: Determine Your Needs & Retirement Goals

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Assess your personal circumstances, financial situation, and retirement goals. Once you have a good understanding of these pieces, you’ll be better equipped to evaluate which type of annuity will meet your needs.


For example, your age can have a significant impact on which type of annuity is right for you. If you’re younger, you may want to consider a deferred annuity so you can save for retirement over a longer period of time. If you’re closer to retirement age, an immediate annuity may be a better fit.

Think about your overall financial goals. Are you looking for a reliable source of income in retirement, or are you trying to save for a specific goal, such as a down payment on a house?

Here are some more important questions to ask yourself:

  • What is my current income level?
  • What is my expected income during retirement?
  • What’s my desired lifestyle?
  • How is my health and am I at a high risk to develop serious conditions later in life?
  • Do I want to leave a legacy for my heirs?
  • How much risk am I willing to take at my age?

Step 2: Understand the Different Types of Annuities

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There are several different types of annuities, each with its own set of benefits and drawbacks. Once you’re familiar with each option’s basic components, you can walk into your financial advisor’s office with confidence.


In a nutshell, all annuities are contracts between a person and a financial institution (usually an insurance company). You pay either a lump sum or monthly premiums to the insurance company, and, in turn, they provide a future stream of income for a specified amount of time.

Here are the most common types of annuities and what to know about each:


Fixed Annuities

A fixed annuity promises to pay a specific and guaranteed interest rate on account contributions. This means that your payments will be predictable and won’t fluctuate based on market conditions. Fixed annuities can be a good choice for those who want low-risk.


Variable Annuities

A variable annuity’s interest can fluctuate based on the performance of an investment portfolio. There is usually more risk involved as well as higher fees. Variable annuities offer a range of investment options, such as mutual funds, stocks, and bonds.


Fixed Index Annuities

A fixed index annuity combines features of both fixed and variable annuities. Like a fixed annuity, your payments will be predictable, but like a variable annuity, your returns will be based on the performance of an underlying index. The most common indexes this type of annuity will follow tend to be the S&P 500, the Nasdaq 100, and the Russell 2000.



Immediate annuities are just what their name suggests – immediate. These are annuities that begin payout right away, or shortly after the contract is purchased. Immediate annuities commonly begin within a month of purchase. This option is good if you need an immediate source of income.



A deferred annuity allows you to invest your money over time and receive payments at a later date.

Step 3: Consider Additional Features

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There are also additional features you can add to your contract. Here are some of the most common to know about:

Income Riders

The main purpose of an income rider is to provide a guaranteed lifetime income stream, regardless of how the annuity’s underlying investments perform. This can offer a measure of security for retirees who are concerned about outliving their savings.

Death Benefits

What happens if you pass away before you receive all the funds from your annuity? Death benefits are an add-on that can provide a financial payout to your beneficiary at the time of your death. It ensures that any remaining funds in the annuity are passed on to whoever you designate.

Step 4: Compare Annuity Providers

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Annuities are typically offered by insurance companies. It’s important to assess the stability and reliability of the company you’re purchasing from. Research their financial ratings and consider their track record. Look for providers with high ratings from independent rating agencies.

Read Next: Ask These 10 Questions BEFORE Buying an Annuity

Step 5: Seek Professional Advice

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Choosing the right annuity can be a complex process, so it’s always a good idea to seek professional advice. Work with a financial advisor who specializes in retirement planning to help you evaluate different types of annuities and choose the one that’s right for your needs.

More Help with Annuities

financial advisor and retired couple

Choosing the best type of annuity for YOU requires careful consideration. But, with the right resources and tools, you can make the decision a little easier.

If you’re looking for additional help with annuities, then start here.

For more retirement planning advice, visit Bob Carlson’s Retirement Watch!

Originally published May 25, 2023

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