Buying an Annuity…

These are sold by insurance companies and after some research, you'll know if it will work for you. You want your money to work hard for you and this is a possibility for you to check out.

First you need to understand exactly what an annuity is and what an annuity does. Usually, an investor pays a certain sum of money to an insurance company for a contract indicating that investor will receive a stream of money sometime in the future, normally at retirement.

An immediate annuity is one that provides the stream of money right away or within the first year of the initial investment. Payments are either made at a fixed or variable interest rate. They are usually monthly or quarterly payments.

Contact a few top insurance companies and request details about their immediate annuities. It's probably simplest to request some written information. Go over each company's information and make appointments with three of the ones you think have the best plans for your financial situation. From these appointments you'll glean additional information to help determine the best company to fit your needs.

Make a list of things to ask each insurance agent or representative - ask about payment options - monthly for the remainder of your life? Or, for a set number of years? Or, to the investor and a beneficiary for life. Query as to whether the annuity pays a fixed or variable rate of interest. Sometimes if the investor dies before the balance is fully paid out, the insurer keeps the money - check to see if this is true. Ask how you can get your money out, and the terms for doing so, if you change your mind after making the initial investment. Ask what fees are charged - monthly, quarterly, annually or any other schedule and what percentage they are.

Now, you have to compare the three companies you chose. It might help to plot this information on a spreadsheet to compare the information more easily. Keeps in mind as inflation rises, your investment might not keep pace. If the insurer becomes insolvent you will lose all you money so it's important to choose a well-established company with an excellent reputation.

It's best to check with your CPA or tax accountant to be sure whatever decision(s) you make do not react unfavorably on your specific tax situation.

As a guideline, it's best to usually avoid any annuity that charges fees in excess of 2 percent.