Retirement is a welcome change for those who have worked hard throughout their youth. But it can also be somewhat unsettling because one is suddenly left without a stable source of income. Fortunately, planning early for retirement can help one transition seamlessly into retirement. Opting for an annuity is a retirement strategy that can help with financial stability in one’s retirement years. But one should be careful to avoid certain annuity mistakes.

Unclear about the different annuity types
Several types of annuity plans are available today, each with distinct pros and cons. Depending on one’s retirement goals, pension prospects, other income sources, etc., one should carefully consider which retirement plan would be the best. For example, fixed annuities offer a specific interest rate over a fixed period, so one can be assured of a fixed income, regardless of economic conditions, inflation, and other factors.
However, since this amount is fixed, it might not be commensurate with one’s needs if they increase over time. On the other hand, with variable annuities, the corpus is invested in different securities, so if the portfolio assets perform well, one has a chance to earn high yields after retirement. Conversely, the downside is that if the portfolio underperforms, one might suffer losses.

Failing to consider inflation
With annuities, one is paying a certain amount at present to receive returns at a later stage. As a result, one can never totally rule out the risk of inflation. So, when looking for the best annuities, one should always consider prospect yields vis-a-vis the possibility of inflation and the resulting monetary requirements one may have in the future.

Overlooking fees and commission charges
Sometimes, annuities may charge additional annual fees or commissions of 2-3%. In other cases, certain additional charges, such as administrative fees and surrender charges, may also apply. If one doesn’t consider such additional charges immediately, one may not know why an amount higher than the decided figure is getting spent. Also, if possible, it’s better to go for annuities that don’t charge such additional fees. If such charges are unavoidable, one should go for the ones that charge a minimal amount.

Researching inadequately on the available options
Several companies offer annuities and promise high yields, but each scheme may have different features, fees, and reputation in the market. So, it’s important to research all the available options, reviewing the company’s profile and website, testimonials from other clients, and the company’s overall ratings. The insurance company’s net asset value, financial objectives, and stability should also be evaluated closely so one doesn’t opt for annuities by fly-by-night operations.

Not using an annuity calculator
When buying an annuity, one should be fully aware of the nature of returns one can expect to receive after retirement. So, it helps to compare one’s investment amount, or the corpus initially invested, with the total income one will likely receive later. However, manually calculating this amount can be time-consuming and may not yield accurate results. The best way to accurately calculate the estimated returns from an annuity is to use an annuity calculator. These days, there are several annuity calculators available online, so one should make the best use of this resource.

Overlooking death benefits
In some annuities, death benefits, or lump-sum payouts to beneficiaries in the event of one’s death, are also offered. Although one may have to pay an additional amount to avail of such benefits, these might provide significant financial relief for one’s family members after a person’s death. So, it’s a good idea to look for annuities that entail death benefits as an add-on.

Not adding one’s spouse as the beneficiary
A joint annuity is the ideal financial decision if one is married, but it is also essential to add one’s spouse as the primary beneficiary. With joint annuities, one’s spouse only gets back the initial invested amount after one’s death, which means they cannot avail of the amount earned so far. On the other hand, if the spouse is added as a beneficiary, they receive the entire amount, including the initial invested amount and the returns accumulated so far, which can be a huge financial relief for the surviving spouse. So, one should never overlook the importance of adding one’s spouse as the primary beneficiary.

Not consulting a financial advisor
Financial advisors can best understand what type of annuity to choose based on one’s specific requirements and objectives. While one might have a fair idea of one’s financial situation and the plan to opt for, a financial advisor’s perspective can help avoid risks and maximize returns. So, it’s best to rope in a financial advisor when buying an annuity.

Being unclear about how much to invest
Annuities are a great way to secure one’s financial future, but investing wisely is important. Unlike other investment options, annuities usually have no fixed investment limit. So, it’s crucial to determine the ideal amount to be invested based on one’s current income, affordability, savings, retirement goals, and any additional sources of income. Overinvesting or investing a smaller amount than one can afford could lead to financial difficulties in the future. So, making a well-informed decision when investing in an annuity is essential.