Understanding Immediate Annuity Contracts: A Buyer's Guide

If you are considering immediate annuities as a way to bolster your retirement income, you will want to make sure to scrutinize the contract before agreeing to make a purchase. Here are a few things to look for in an immediate annuity contract.

Interest Rate

When you are looking at an immediate annuity contract, you need to make sure that you understand what the interest rate is and what type of rate it is. For example, you want to know if you are going to get a variable interest rate or a fixed interest rate. If the interest rate is fixed, you want to know what the rate is. If it is variable, you want to know how the interest rate is determined. Find out if it is tied to a financial index or the performance of a group of investments.

Fees

You will also want to make sure that you understand the fee structure of the annuity and how you will be charged. Some annuities are going to take a percentage out of the money that is earned from investments. Others are going to charge you a flat rate. Just make sure that you know how much you are going to have to pay for this type of investment.