What Seniors Need to Know About Annuities

You hand over a sizable lump sum. The annuity company gets to invest it, however they see fit. They will pay you a fixed monthly amount.

An annuity will pay income to you for the rest of your life. However, if you are considering buying an annuity, you need to understand what you are getting yourself into, before you hand over your life savings. Companies that sell annuities would go out of business, if they did not hedge their bets.  This means that you might receive a better return on your money elsewhere, but possibly with greater risk.

We understand that many seniors worry about outliving their money, and the peace of mind of guaranteed income for life might be worth a lower return. Your happiness and financial security are essential. To help you with your decision, here are some pointers on what seniors need to know about annuities.

There Are No Mulligans

Once you buy an annuity, that money is gone forever. It will not be there, if you have a medical crisis or some other need. You hand over a sizable lump sum. The annuity company gets to invest it, however it sees fit. The company will pay you a fixed monthly amount. It is betting that you will die, before they have to pay out an equivalent return on your money.

When you pass on, the annuity company keeps the money, even though it also enjoyed the income earned from investing it. You will not be able to leave the lump-sum to your heirs.

Experts recommend that if you are set on buying an annuity, that you only put in the minimum amount to cover the difference between your Social Security check and your basic living expenses. You can invest the rest of your money, control it, spend it as you wish and leave any surplus to your loved ones.

The Purpose of an Annuity

Some companies offer annuities as a way to invest now for a payout down the road. Traditional annuities, however, start paying you regular income right away.

Financial planners recommend that if you want to invest your money to use down the road, there are better ways to do this without forking over so much money to an annuity company. If you want to create guaranteed monthly income and you are about to retire, a single-premium immediate annuity might serve your needs.

Resist Sellers Without the Highest Credit Rating

Although it might promise generous monthly income payments to you, if you hand over your savings to a company that goes out of business in a few years, you have lost all of that money. Compare quotes from the annuity insurers with the highest ratings. You can check quotes and ratings online.

Make sure that you understand all the fees and surrender charges or penalties you will have to pay, if you absolutely have to get back some of your money for a significant emergency. Find out if your heirs will get any payout, if you pass on during the first 10 or 15 years of the annuity payments. You should also lock down in writing all terms, like application fees and any other up-front costs.

This article does not offer financial advice. You should talk with your financial advisor before making an investment decision.


AARP. “5 Things You Should Know About Annuities.” (accessed January 25, 2019) https://www.aarp.org/retirement/retirement-savings/info-2019/annuities-buying-advice.html

Suggested Key Terms: what seniors need to know about annuities, what you should know before buying an annuity

About the author

Bob Brumfield

Attorney Bob Brumfield has been practicing law since 1984 and regularly receives the “Top Lawyers in California” award as well as the “Client Distinction” and “Client Champion” awards from Martindale-Hubbell.

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