Steps in Choosing an Annuity Program

By Compuquotes Team on July 27th, 2008

Before you can choose the best annuity program for you, you need to answer a few basic questions first. Try to get as objective as possible answers to the following set of questions about yourself.

  • 1. After social security and other pensions or savings, how much monthly or annual income will I need after I retire?
  • 2. Will this income be used to support only myself or my wife and child as well?
  • 3. Do I have money to pay for premiums now? If yes, how much?
  • 4. Will I need the money sometime soon or can I park it in my annuity over the long-term?
  • 5. When do I want to receive income payments?

The foregoing will enable you to identify which annuity program is best suited for you, whether fixed or variable, immediate or deferred, payable in lump sum or in installments. But don't buy that annuity just yet!

Now you need to come up with your investment objectives. If you want to assure your retirement fund, you will opt for lesser-risk programs. But if you have time on your hand till your retirement age, you can afford to be a bit speculative to maximize returns.

Relative to time on your hand and speculating is your ability to take on risks. Identify your risk tolerance levels by gauging how you or your investment is supposed to act in times of market fluctuations, micro and macroeconomic changes, globalization and other economic considerations. Assessing your risk tolerance will make you more acutely aware of the risks.

Having known the risks, you prepare your mitigating factors for these risks. You prepare for contingencies. In addressing the contingencies, you revisit your self and your objectives. If you are poised for growth, you adopt an annuity program that may be speculative but will guarantee higher returns, but at the same time will have ample elbow room to provide for contingencies. If you are poised for security, you may opt for more conservative or �secure' programs.

Now you are ready to identify which annuity program or product will need to be included in your portfolio to adhere to your personal preferences, your choice of an annuity, your risk tolerance, and your provisions for contingencies. You are ready to build your portfolio now, as you identify the financial instruments or vehicles that will go into your portfolio, again depending on the previous steps, whether you go for fixed income investments or more liquid types of investments.

Having gone through these steps and identified the annuity program and portfolio you desire, you solidify your investment strategy and portfolio management style. Of course, you can have a financial plan advisor do this for you, but you need to have a working knowledge of the basics of the annuity program. Arm yourself by reading on the policies, the terms of reference, investment references, and other info-materials so that you are prepared for any eventuality. Working your way up slowly but surely, you are more in a position to monitor and keep track of your annuity properly and more effectively.

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