Who Should Buy Annuities?

Conservative investors should buy an annuity that is a fixed annuity as the principal is guaranteed and the interest rate is stated in advance. Buying an annuity of the fixed variety is typically done by people age 55+ seeking security for retirement.  These retirement annuities pay income during retirement and thus their appeal.

Growth oriented investors interested in buying an annuity will most likely be attracted to variable annuities.  These contracts offer a menu of investment options similar to mutual funds. One can earn far more than the 3.5% that fixed annuities currently offer.  However, the variable annuity investor can also lose money if the investments decline.

An investor undecided about buying an annuity form the above two options might buy an equity indexed annuity.  This is a fixed annuity with guaranteed principal but the interest rate is determined by how well the stock market performs.  So when you buy an index annuity, you gain features or benefits shared by fixed and variable annuities.

Buying an Annuity—How It’s Done

Annuities can be purchased through a licensed life insurance agent.  Most stockbrokers, financial advisors and many bank employees are licensed to sell annuities.  You can buy an annuity from almost any financial institution even though the issuer will always be an insurance company.  Annuity buying is as simple as writing a check and signing an application.

Who Buys Annuities?

The Committee of Annuity Insurers commission regular studies on who buys annuities.  The latest study shows:

Annuities are Purchased by Middle-Class Americans . Eight out of 10 non-qualified annuity owners (80%) have annual household incomes below $100,000. Only 4% have annual incomes greater than $200,000. Almost half (42%) have annual household incomes below $50,000.

People buy annuities to Improve Retirement Security . Over 90% of non-qualified annuity owners agree that the statement “you have done a very good job of saving for retirement” describes them well. Further, they view their annuities as contributing greatly to this preparedness.

Those who buy annuities are Happy with annuity purchase . Owners demonstrate a unique loyalty and commitment to their annuity purchases, with almost all (93%) reporting that they still own their first annuity.