Retirement planning has become critical in today’s day and age due to increased life expectancies. Social Security and Pension schemes are no longer enough to last out an entire post-retirement lifetime. This is the reason why many people are now looking at creating alternate revenue streams for retirement. One such revenue stream is life annuity.
In this review, we discuss the top annuities available in the market in 2020. We have also given a brief overview of what annuities are, how they generally work and what needs to be kept in mind while buying annuities.
The top annuities in the market in 2020 are listed below. Here, we have listed the name of Insurance company, its AM Best Rating, the best annuity plan that that company has on offer, and its customer rating. We have also inserted the link to that plan for your convenience. The AM Best Rating is based on the financial health of the company, and there is a total of 16 possible ratings that can be given. The highest possible rating is A++. Each of the companies listed here have an excellent or better rating.
MassMutual Fixed Index Annuity
MassMutual Index Horizons Annuity
New York Guaranteed Future Income Annuity
Fidelity Personal Retirement Annuity
Fidelity Deferred Income Annuity
Reviews of the Top 6 Annuities of 2020
Best Annuities Based on Plan Types There are many investors who want to know which are the best annuities in each category. Categories refer to the types of annuity plans that are available in the market today, in 2020. Best Fixed Income Annuities The top 3 companies for fixed income annuity plans in 2020 are:
Best Flexible Annuities for Income The top 4 annuities for flexibility and income are:
Best Annuity for Potential Annual Income For a fixed-indexed annuity plan that offers the best chances of high potential annual income, the following are the best deals:
Best Variable Annuity for Minimum Guaranteed Annual Income If you’re looking for an annuity plan that offers the potential for higher payouts based on the performance of invested assets, then these ones are the best:
What are Life Annuities?
Life annuities (also known as lifetime annuities) are contracts between the buyer (called the annuitant) and an insurance company, where the buyer will be paid a guaranteed income for either the remainder of their life or for a fixed period of time, depending on the type of plan purchased.
At the end of the day, such an investment allows a person to create an income stream even after they retire.
Life Insurance and Annuities
The difference between life insurance and annuities is simple. While both are long-term financial plans and have death benefits, annuities are protection against longevity (an income stream for the remainder of a person’s life after retirement), while life insurance is protection for the buyer’s dependents against an untimely death.
Why Are Life Annuities So Popular?
After the 2008 financial crises, many investors switched to annuities as a guaranteed income source after retirement. Since then, annuity sales have boomed, reaching their highest levels in 2019. This is because annuities offer their buyers the guarantee of a steady income after retirement, a guarantee that other types of investments cannot match.
Another benefit of buying an annuity plan is the savings on taxes. May investors end up maxing out their 401(k) and IRA tax shelters. This is where annuities can help. Investors can use their annuities to get further tax-deferment.
And finally, since annuities offer investors a guaranteed income, investors can look at more aggressive strategies for the other assets in their portfolio.
How Do Annuities Work?
Depending on the type of annuity plan, premiums can either be paid in a lumpsum or over a period of time (as would be done for other types of insurance premiums). The good news is that annuity plan buyers do not need to pay premiums indefinitely. Once the contracted amount is paid in the form of premiums, buyers can either start getting their payouts, or they can defer their payouts for a later date.
The time during which a person has to pay premiums is called the accumulation phase. And once those premiums have been paid in full, the payout phase will begin.
The payouts that an annuitant gets is a mix of the principal amount paid, as well as the interest accrued on that amount.
How are the Annuity Payouts Structured?
One of the reasons why annuities are so popular as a retirement option is their flexibility. Annuity plans can be customized to fit any retiree’s needs or requirements. So, a person can choose to get paid a single lumpsum, for a fixed period of time, or even for the rest of their lives.
Buyers can also choose to end payments in the event of their death, or ask for payments to be continued for their heirs after they pass away – for a period of time, at least. This is what is called term certain annuity. It means that an annuitant gets his or her payouts for the rest of their lives, but if they pass away within a certain period of time (say, 10 years from the time the payouts start), then their dependents (or heirs) will continued to be paid that annuity for a specific amount of time. All of these conditions need to be laid out when the plan is being purchased.
Payout amounts are dependent on the annuitant’s life expectancy. So, if the investor has a high life expectancy, then he or she will be paid smaller sums over that period. Because of this, investors should think carefully about when they would like to start getting their payouts.
Annuity payouts can be structured to be paid out monthly, quarterly, annually, or even as a complete lumpsum. Payouts can begin as soon as the premium payment is completed, or be delayed by as much as several decades.
What Are the Downsides to Life Annuity?
Like any product, there are pros and cons to life annuities, and it is best to be aware of the downside of any product before you invest in it.
One of the biggest issues with life annuity plans is that they cannot be changed once purchased. All the terms of the annuity plan need to be clearly set before its purchase. There is no way to liquidate or even change the plan once it has been bought.
So, for example, if a person buys and annuity plan when the interest rates are low, later, when the rates go up, the annuitant will not be able to change his or her plan to a better interest rate.
Nothing in life is certain, least of all how long a person will live. So, it is possible that someone buys a life annuity plan for $100,000, but just 6 months later, they die. All that money that person invested in his life annuity will go to waste. However, the good thing is that there is a workaround for this – which we will discuss later.
What Factors Impact Income on Annuities?
It is important to understand the factors that impact the payout before investing in an annuity plan.
The rate of interest that was offered at time a person bought their plan will impact the payout amount. Therefore, it is best to wait for interest rates to be at their highest before purchasing annuities.
Life expectancy is calculated based on many factors – the annuitant’s age when the payout is to start, their health condition, gender and so on. In fact, the gender of a person has a significant impact on the payout amount. This is because, statistically speaking, women are expected to live longer than men. And because of this, female annuitants are given lower payouts than male annuitants.
If an annuitant has poor health and has a lower life expectancy, this will impact the payout amount. However, if this is the case, then the annuitant can discuss the possibility of a special income quote called impaired annuity.
The type of plan an annuitant chooses will also impact the amount that is paid out. For example, if the buyer has opted for a straightforward fixed annuity with no frills, then the amount paid out will be a combination of the interest and the principal. However, if the buyer opts for a variable annuity, then, while the principal remains the same, the amount of the return on investment will depend on market conditions.
This article originally appeared on Insuranks, an insurance website that ranks the best insurance companies and plans for the benefit of insurance shoppers and helps them compare and get insurance quotes.
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