How to Compare Annuity Plans | Finding the Right Annuity

Annuities supercharge your retirement savings. They can provide a steady, guaranteed lifetime income.

The tricky part is deciding which annuity plan is the best one for your needs.

Like most financial products, there's no one-size-fits-all approach to choosing an annuity. Your unique retirement income goals, risk tolerance, tax situation, and other factors make some annuity products more appropriate for you than others.

It's easy to feel a bit like Goldilocks when comparing annuity options. This one is too risky, but that one doesn't grow fast enough. It's not easy finding one that's just right. The choice can feel overwhelming, but it's well worth the time and effort. The right annuity helps ease the stress of retirement planning. That way, once you retire, all you have to do is focus on enjoying retirement.

In this article, we provide some tips for comparing annuities and deciding on the one that's right for you.

Comparing Annuity Plans

Comparing annuity plans is no easy feat, but there are some tricks to make it easier. Here's our guide for comparing annuity plans using a simple step-by-step process.

Step 1: Set Aside Some Time To Research

It can take some time and effort to conduct your research. It’s best to look up various annuity options from several insurance companies.

The process could take several hours—even days. So set aside some time to research carefully.

Step 2: Figure Out Your Goals

In this step, imagine how you'd like your life as a retiree to look. Are you jet-setting around the world? Are you sipping a crisp Pinot Grigio by the pool in a luxurious retirement community? Are you living modestly in your family home, spending lots of time with your grandkids?

Envision the retirement lifestyle you're aiming for, and consider how much it will cost. That way, you have an idea of your financial goals and the level of annuity income you need to reach those goals.

Also, take a moment to gauge your comfort with risk. Many annuity buyers want low-risk options. They want to be sure they have a solid income to live on in retirement. But others may desire a more aggressive approach. They may want higher growth potential and be comfortable with higher risk. Take some time to decide your risk tolerance.

Step 3: Decide on the Role of Annuities in Your Portfolio

For most people, annuities are just one piece of their retirement portfolio. They may have other retirement accounts, like IRAs and 401(k)s. Some also invest in other assets, like stocks, bonds, or real estate.

Let your financial circumstances and risk tolerance determine the size of the role annuities play in your portfolio.

For example, imagine most of your retirement savings are sitting stagnant in an IRA. In that case, you may want to play it safe and put most of that money in an annuity. That way, you'd get guaranteed steady growth.

Or, let’s say that you want to be more of an investor. You may choose to put a portion of your retirement savings into a low-risk annuity. Then, you can put the rest into more risky investment options.

Decide what you want your portfolio to look like. Then you'll better understand which type of annuity is best for you.

Step 4: Decide Between Types of Annuities

Next, think about types of annuities. We provide a big list of different annuity types further on. That’s where we explain interest rates, which annuity is generally the safest, and more. In this step, have a look through the provided list and decide which type you prefer.

We suggest you decide on the kind of annuity you want before choosing the insurance company. That's because not all companies sell all types of annuities.

For example, at Canvas Annuity, we specialize in straight-forward, low-risk fixed annuities. If you wanted to take a gamble with the more risky variable annuities, you would have to look elsewhere.

Choosing the best type of annuity for you will help you select an appropriate company.

Step 5: Choose a Reliable Annuity Company

Now, research the top annuity companies to find the best candidate that meets your annuity needs. When choosing an annuity company, look for:

• Positive ratings from independent reviewers, like AM Best
• Low fees and expenses
• Good financial health
• Positive customer service reviews from a trusted website, like Trustpilot

How can you judge a company's financial health? One way is to research ratings from credit rating agencies, like S&P, Moody's, or AM Best.

The financial health of your company is really important. Annuities provide guaranteed lifetime income, but that guarantee is only as good as the financial strength of the life insurance company that issues the policy. 

For the record, Canvas Annuity policies are written by Puritan Life Insurance Company of America. It has a strong financial history and a B++ rating from AM Best.

Step 6: Compare Between Annuity Options, Riders, and Add-ons

Now, you know what type of annuity you want and you've found your annuity company. Next, browse the annuities they offer and choose any special features. Here are some of the common options and add-ons you may be able to select.

Term certain vs. life annuity options. When you annuitize you will be able to choose from annuitization options offered by the insurance company. Term certain Payouts offer guaranteed income over a certain number of years. For example, selecting a 10-year term certain payment would mean income for 10 years. Life annuities provide income for the rest of your life. Most annuities offer a variety of terms as well as life and non-life contingency options.

Single premium vs. flexible premium. Annuities can differ based on how you fund them. You fund single premium annuities with a one-time lump-sum payment. You fund flexible premium annuities with multiple payments over a period of time.

Single premium annuities are best for those who have a significant chunk of money saved up. Flexible premium annuities are better for people who have yet to save up a large stash of cash and want to fund their annuity over time.

Joint vs. single life annuities. Single-life annuities offer payout options for a single person. They provide an income stream for the rest of the annuitant's life. But joint life annuities are for two people. They provide payouts for the rest of the annuitant’s life and the life of someone they choose (typically, their spouse). Joint life annuities tend to pay less, but they ensure both you and your spouse always have incomes.

You might prefer an annuity that has a joint life payout option if you have a spouse and you want to make sure you both receive income payments for the rest of your lives. Single-life annuities are better for annuitants without spouses.

Death benefits. Some annuity companies apply surrender charges to the account value if the beneficiary wants to receive the death benefit payout before the end of the surrender charge period.

You may wish to choose an annuity with built-in death benefits or a death benefit rider if you want to leave a legacy to a family member or friend.

Return of premium benefit. Some annuities offer a return of premium benefit. This lets you surrender your annuity and receive your initial premium back (less any withdrawals). This option is sometimes offered as an optional rider for an extra fee. At Canvas, we offer this benefit for free with our Flex Fund annuity.

This option is ideal for anyone wanting to ensure they can get their original premium back at any time, should they need them. If you prefer a higher interest rate at the expense of less flexibility, you may not wish to choose this option.

Cost of living adjustment (COLA). Annuities provide a guaranteed stream of income in retirement. But typically, the value of income payments is fixed. A COLA is an optional rider you can sometimes add to your annuity for an extra fee. It increases the value of your regular income payments with inflation.

This rider is a good option for those worried about inflation lowering the buying power of their future annuity payments. If you aren’t worried about inflation, you might not opt for this rider.

Step 7: Apply for Your Annuity

That's it! You've finished your research, you’ve chosen your annuity, and you’ve selected your customized features. Now you just need to apply! Some companies, like Canvas, let you apply and fund your annuity online.

If you need to, check out our article on buying an annuity. It walks you through all the details of the actual purchasing process, how to fund your annuity, and more.

Important Considerations When Comparing Annuities

Before diving into the different types of annuities, we also want to ensure you think about two other important considerations: tax implications and flexibility.

Tax implications

One of the main reasons to buy an annuity is the tax advantages. Annuities grow tax-deferred, which means you don't pay taxes on annuity earnings right away. Instead, you pay ordinary income taxes later when you withdraw from your annuity. That means your annuity account grows faster, and many people pay fewer taxes overall.

Note that you can often choose between buying a qualified or a non-qualified annuity. You fund a qualified annuity with pre-tax dollars, such as funds from an IRA or 401(k). You fund a non-qualified annuity with after-tax dollars. Either could be the right choice for you—it just depends on your personal finances. Read about annuity taxation rules to learn more. For even more guidance, consult a tax advisor. They can help you make an informed decision based on your tax situation.

Flexibility

Annuities are long-term investments. Most people purchase an annuity knowing that their money is relatively inaccessible. If you do need to access your funds, you may have to pay a fee.

When people make early withdrawals, annuity companies often levy a penalty called a "surrender charge." (The annuity contract specifies the surrender charge period and penalty amounts.) The IRS may also levy a tax penalty if you withdraw money from your annuity before age 59½.

The important thing to remember is that an annuity is a long-term investment. Taking your money out early can be expensive. If you think you might need your money before the term of your annuity is over, choose a more flexible option (like the Flex Fund).

Choosing Between Different Types of Annuities

There are many different types of annuities to choose from. Here are some of the main ones and who they are best suited for.

Immediate Annuities

Immediate annuities begin to pay you a regular income almost immediately after you buy them. You purchase these with a single, up-front premium payment.

This type of annuity is best for people who are already in retirement (or close to it) and want their income right away. It’s not ideal for individuals who want their annuity to achieve significant growth. It is also not ideal for people that may need access to the funds at a later date. Once you purchase your annuity, you only have access to the income payments.

Deferred Income Annuities

Deferred annuities pay you back much further in the future. They have more growth potential because your money has time to accumulate earnings. After annuitization, the annuity stops earning interest, and your payouts begin.

A deferred annuity is best for those who want to maximize growth and have years before they need annuity income. All Canvas annuities are deferred annuities.

Variable Annuities

Variable annuities are some of the riskiest annuities. When you buy variable annuities, you select sub-accounts for your premiums. These are invested in a portfolio of assets, like stocks, bonds, and money market funds. If these investments perform well, you can earn a higher rate of return. But if they perform badly, you could earn very little—you could even lose money.

These are best for individuals who want higher growth potential and are comfortable with stock market volatility. Remember, you can lose money with variable annuities. Because they are so risky, this kind of annuity doesn’t always offer income guarantees.

Fixed Indexed Annuities

Fixed-indexed annuities are similar to variable annuities in that they incorporate market risk. When you buy a fixed-indexed annuity, you choose a market index to follow, like the S&P 500. If the index performs well, your crediting rate will be higher. If it performs poorly, your rate decreases.

However, fixed-indexed annuities also incorporate a fixed minimum interest rate—usually 0%. That means in a fixed-indexed annuity, you won't lose your initial premiums as a result of poor market performance.

These are best for individuals who want slightly higher growth potential than fixed annuities. But individuals must also be comfortable with higher risks. Remember, your money may not grow in a fixed-indexed annuity.

Fixed Annuities

Fixed annuities offer a fixed minimum interest rate. These are the lowest-risk annuities. With a fixed annuity, you can be sure your money will grow at a steady rate (as long as you don't make early withdrawals).

Fixed annuities are best for people who want to be sure their money will accumulate steady growth over time. All Canvas annuities are fixed annuities. Our fixed annuity rates are some of the best in the business.

Final Thoughts

Comparing annuities can feel overwhelming, but it's very important. We encourage you to give this process the careful consideration it deserves. Consider speaking with a financial advisor if you need help.

And feel free to reach out to our licensed representatives. They're friendly and very knowledgeable about the low-risk fixed annuities Canvas offers. They’ll be happy to explain exactly how an annuity can provide a steady retirement income and secure your financial future.