How To Buy an Annuity

Retirement is supposed to be a well-earned break after a lifetime of work.

So why can planning for it feel so stressful? If the idea of funding your retirement feels difficult, you’re not alone. Millions of people struggle with retirement planning.

Luckily, annuities can help. Annuities exist to take away some of the financial stress of retirement.

They offer retirement income, so you have predictable funds for planning your finances.

They remove some of the uncertainty from your retirement plan, so you can focus on actually enjoying all your free time. Sounds great, right? So how do you actually buy an annuity?

Buying an annuity may seem confusing, but it's really straightforward, especially when you can purchase an annuity online.

In this article, we walk you through the process of buying an annuity. By the end, you'll know exactly how to buy and set up an annuity. We’ll also review why you might buy an annuity and what to think about when choosing one.

How Purchasing an Annuity Traditionally Works

Traditionally, buying an annuity has followed a pretty standard script.

Here are the steps that you would typically go through with most annuity companies.

1. Do Your Research on Annuity Products

First, decide which annuity product best suits your current financial situation and future financial needs. This entails some research to understand your options.

You want to shop around for the best annuity rates, make sure the company you’re buying from has a good rating, and be sure to read through any sales materials including the prospectus of any annuity you consider (only variable annuities will have a prospectus). This can take some time. It may actually be the most challenging part of buying an annuity. But it’s essential that you purchase the right product for you.

2. Find a Trustworthy Annuity Company

Lots of companies sell annuities.

Always research a company before purchasing an annuity from it. To know if a company is legitimate, look it up with your state insurance department.

It should have a license to sell insurance products in your state. Unfortunately, there’s no national list of licensed insurers, but if you do a quick search on the internet for “List of licensed insurance companies in [your state]” you should find a list for your state.

You also want to make sure the company is financially sound and has good customer reviews. Look for companies with solid credit ratings from independent financial rating agencies like AM Best, Moody’s, Kroll, and Standard & Poor’s.

Note that our annuities at Canvas are issued by Puritan Life Insurance Company of America, an insurance company with an AM Best rating of B++ and a strong financial history that you can trust.

3. Read and Understand Your Annuity Contract

When you find an annuity product that meets your needs and a trustworthy provider, make sure you understand all the terms and conditions in your contract.

The contract will explain:

• The type of annuity you’re buying
• The interest crediting rates
• Any annuity fees (including any management fees or surrender charges)
• The length of your surrender charge period
• When you can annuitize to start to receive income payments
• And much more

Make sure you fully understand your contract so that you know exactly what to expect.

4. Meet With an Agent

Traditional annuity companies require you to speak with a sales representative before purchasing an annuity.

In many cases, you actually have to schedule a face-to-face meeting. It’s much less convenient than purchasing an annuity online.

During this meeting, the agent will likely ask you some suitability questions. These are designed for consumer protection and help the insurer determine whether the annuity product is an appropriate product, given your financial situation and needs.

These questions can vary depending on the type of product. They may range from a few general questions to many specific questions covering your entire financial situation. They often include questions about your age, financial status, and tax bracket, among other things.

Be careful, though! Traditional annuity company agents often work on commission, and, some could even try to sell you an unsuitable product with features you don't need and fees you don’t want to pay. That's why this is the time to ask some important questions about annuities yourself

At Canvas, if you are buying an annuity using your checking or savings account you can complete the entire process online without ever speaking to an agent if you don’t want to.

If you are rolling over another annuity or money from a 401K into one of our annuities, you can still complete the majority of the process online, after a quick interview with our non-commissioned agents.

5. Answer Questions and Complete an Application Form

If the agent deems the product is suitable, they will send you an application form.

Annuity applications are generally short and do not require any underwriting, which means that they are less complicated than other insurance products.

That makes them a good choice for people worried about an underwriter potentially rejecting them (which may happen with life insurance products). Make sure you fill out your application form completely and accurately to avoid any delays.

6. Transfer Your Funds

You can pay your premium with cash, transfer money from a retirement savings account, or use funds from another brokerage account.

You may also be able to roll over an IRA, 401(k), or other retirement account into the annuity. If you are using a rollover or transfer to fund your annuity, the application process usually includes additional forms.

You will need to provide information on the product you’re transferring or rolling over. Remember that there are different tax implications depending on how you fund your annuity. You may wish to speak with a financial planner or tax advisor to fully understand the tax implications.

7. Use Your Free Look Period

Most annuity companies offer a free look period. If you change your mind about the annuity in this period, you can get your money back penalty-free.

Canvas offers a 30-day free look period to make sure you have plenty of time to verify that the purchased annuity works for you.

How To Set Up an Annuity Contract with Canvas

We know that the traditional process of buying an annuity can be time-consuming and complicated. That’s why we’ve simplified it.

We’re one of the first annuity companies to let our clients buy annuities completely online without ever talking to an agent.

(Of course, you can talk to an agent if you want to! Our licensed representatives are friendly and very knowledgeable.) Buying an annuity online from Canvas is simple.

For most people, it takes less than 10 minutes to complete the application form and fund the annuity. Here's how to purchase an annuity from Canvas.

1. Tell Us About Yourself

First, you answer a few application questions. These questions help you verify that this product is a good fit for your financial situation.

Then, you tell us who you are. You provide your contact information, your address, and let us know who you would like to name as your beneficiary and annuitant. If you have any trouble filling out the application form, you can send a message in the chatbox on your screen or give us a call. We’re here to help!

2. Fund Your Account

Next, you fund your account and put your money to work! You can easily purchase an annuity online with a transfer from a separate account. You can also fund your annuity with an e-check, a wire transfer, or a physical check sent in the mail. If you’re funding with a rollover, we can help you with that too, although the process has a couple of extra steps.

3. Watch Your Money Grow

And that’s it! Buying an annuity from Canvas is a piece of cake. If anything changes in the first 30 days, you can get your money back penalty-free. Plus, if you select the Flex Fund, you can get your initial premium back (minus any prior partial withdrawals) at any point during your contract term.

At Canvas, purchasing an annuity is easy. When you’re done, you can just sit back, watch your money grow, and start planning how you’re going to spend all your free time as a retiree!

Reasons To Buy an Annuity

“Wait a sec—remind me why I would buy an annuity again? What does it do for me?”

Good question. An annuity, or “income annuity,” provides you a guaranteed stream of income in retirement. It can help supplement your social security payments, retirement savings, and other investment income.

It works like this.

First, you fund your annuity by paying a premium to an insurance company. That money earns interest over time.

Later, in retirement, you can annuitize your annuity, converting it into regular payouts (or receive it as a single lump sum).

Those income payments can last you the rest of your life.

Benefits of Annuities

Annuities are so popular because of their numerous benefits.

Those benefits include:

• Guaranteed income. Knowing that you’ll have a regular monthly income in retirement can alleviate some of the uncertainty about how you’re going to pay your bills once you stop working.
• Income for life. Lifetime payouts mean you have an income for the rest of your life. You get peace of mind knowing that you’ll receive monthly payments for as long as you’re around to enjoy them.
• Tax-deferred growth. You don’t pay taxes on annuity earnings until you withdraw your money or receive payments. Most people receive their annuity payments in retirement when their income is low and so they pay fewer taxes overall. Tax deferral also allows the annuity to grow faster. Note that you do still have to pay ordinary income tax on annuities—you just pay it later when you receive your payouts.
• Death benefits. Most annuities offer death benefits so that your money is passed on to a beneficiary if you die while your contract is in force.
• Safety. Fixed Deferred income annuities let you grow your money steadily and are super low-risk. That means you get steady earnings that aren't affected by market volatility.

Drawbacks of Annuities

Annuities have a lot of benefits; it's no wonder that they're so popular for retirement planning! But, there are some things to be aware of when buying an annuity.

• Fees. Some companies charge you high fees for annuities. Always read your contract to understand the fees. (At Canvas, we have zero commissions, account charges, or fees.)
• Early withdrawal penalties. Annuities are designed to hold your money over a long period of time. You may face penalties if you withdraw from your annuity early. Make sure you understand the early withdrawal rules in your contract.
• Risk. Different types of annuities have different levels of risk. Fixed annuities are one of the lowest-risk investments out there. But variable annuities and fixed indexed annuities are riskier because their performance is linked to stock market performance. So make sure you match your product to your level of risk tolerance.
• Less growth potential. Annuity interest rates are quite high compared to other low-risk investments like CDs. But they generally don't offer the same earning potential as higher-risk investment products, like mutual funds, index funds, or stocks. These investments can potentially earn more money... although you can lose money on them, too.

Considerations for Buying an Annuity

Finding the best annuity for you means understanding what your financial needs are.

It can help to ask yourself the following questions:

• When do I want my annuity to pay me back? If you want your guaranteed income to start soon, an immediate annuity could be a good option for you. If you want your annuity to grow over a period of time, a deferred annuity may better suit your needs.
• What kind of risk am I comfortable with? Most individuals going into retirement want very low-risk products—they want to know their money will grow. If that’s you, a fixed income annuity may be the best option. But if you’re comfortable with more risk and the possibility of higher earnings, a variable or fixed indexed annuity could be appropriate.
• Do I want income for the rest of my life? If you do, you may prefer a product that offers lifetime income. If you don’t, you may enjoy a period-certain annuity payment option. Most annuities have several annuitization options and don’t require you to choose an option until you annuitize.
• What other features do I need? Annuities can usually be customized with optional extra features called "riders." (These may come with an additional cost). Optional riders can include long-term care insurance, death benefit riders, and more. Think about whether these make sense for your circumstances and preferences.

Buy an Annuity To Secure Your Financial Future

We know that trying to understand annuities can feel overwhelming. There’s a lot to know.

Even those of us who love to think about personal finance can sometimes be left with our heads spinning. But buying an annuity doesn’t have to be hard or complicated.

Especially now that you know how to set up an annuity online.

Canvas offers straightforward, no-nonsense, fixed annuities designed to be easy to understand. We took some of the guesswork out of choosing an annuity.

That’s why we only offer products with great interest rates that can provide you with a guaranteed retirement income. And our online process makes buying an annuity a snap.

Yes, it can feel intimidating to buy an annuity, but don’t let those feelings stop you. Instead, do your research, think about your needs, and reach out for help if you need to.

Buying an annuity could be the best financial decision you make. And Canvas can help.