A Financial Checklist for Choosing Between Annuities and Investments
Navigating this decision requires a methodical approach. Use this simple checklist to guide your thinking and actions as you structure your retirement income plan.
First, create a detailed retirement budget. Tally up all your monthly expenses, from your mortgage and groceries to potential healthcare costs. This number is your foundation. You cannot build a plan without knowing exactly how much income you need to generate.
Second, calculate your guaranteed income floor. Add up your monthly benefits from Social Security and any company or government pensions. Subtract this total from your expenses to identify your “income gap.” This is the amount your savings will need to cover each month.
Third, have an honest conversation with yourself about risk. Can you stomach market downturns, or do you need absolute certainty in your income? Your answer will strongly point you toward either investments (for higher risk tolerance) or annuities (for lower risk tolerance).
Fourth, if you are considering an annuity, comparison shop. Never buy the first product you are shown. Get quotes from at least three different, highly-rated insurance companies (look for A+ ratings or better from agencies like A.M. Best). Carefully compare the payouts, fees, surrender charges, and company financial strength.
Fifth, if you are leaning toward investments, prioritize diversification and low costs. A simple portfolio of low-cost index funds or ETFs can be an excellent, cost-effective way to stay invested in the market without the complexity of picking individual stocks. A “balanced” fund that holds both stocks and bonds can be a good starting point.
Finally, consult with a qualified, independent financial advisor. It is wise to seek a second opinion from a professional who is legally obligated to act in your best interest. A fee-only certified financial planner can review your situation and help you validate your decision before you commit your life savings to any product or strategy.
Disclaimer: This article is for informational purposes and is not a substitute for professional financial or tax advice. Consult with a certified financial planner or tax professional for guidance on your specific situation.
This section is part of our comprehensive guide to senior finance and retirement income strategies.
