Recognize that the annuity world changes. For example, deferred annuities used to be purchased mainly as a tax dodge by people in the upper tax brackets. In the future, income annuities will likely be purchased by Baby Boomers who want a guaranteed lifelong paycheck. 

  • Understand how “survivorship credits” (mortality credits) work.When the owner of a life annuity dies, his or her assets are distributed as so-called survivorship credits to the owners who go on living. That’s the biggest benefit (and for some, the biggest drawback) of life annuities.
     
  • Get creative with your annuities. You may be able to maximize your income in retirement with a combination of two or three annuities. This path takes research and planning, but it can pay off!
     

  • Decide how much money to keep outside an annuity. When you buy an annuity, leave some money in more liquid investments so you can meet emergency expenses.
     

  • Plan for trade-offs in risk and reward. Annuities are insured investments, which means they protect you from some of the risks that always accompany investing.
     

  • Consider your options if you don’t have a traditional pension.Like most people, you may not retire with a traditional pension. But you can use an income annuity to build a do-it-yourself pension.
     

  • Get familiar with your “risk tolerance.” Determine what risks you can tolerate and which ones you can’t. For example, if a 500-point drop in the Dow doesn’t deprive you of sleep, then you probably don’t need a life annuity.
     

  • Expect trade-offs in risk and reward. Annuities are insured investments, which means they protect you from some of the risks that accompany investing. But greater safety often means smaller gains, so some risks may be worth taking.
     

  • Count on living longer. Don’t assume you’ll die young — most people underestimate their lifespan by several years, and half of all 65-year-old Americans will live past age 83. Look at annuities that can help with extended retirement funding.*Guard the womenfolk! Women tend to outlive their husbands, and therefore have a much greater risk of running out of money during their lifetimes. That’s why prudent couples buy “joint-and-survivor” life annuities.
     

  • Protect yourself from inflation. The rising cost of living can erode your purchasing power in retirement. An income annuity with an inflation rider or a variable income annuity can help.
     

  • Look at how much you need to spend. An advanced life deferred annuity (ALDAs) is an inexpensive way to guarantee yourself an income in late retirement while pumping up your spending power in early retirement.