What to Look for When Considering Annuities for a Successful Retirement

By Michael Brough

If you’re unfamiliar with annuities, they might sound complicated or confusing. But with the disappearance of company pensions and longer life expectancies, more people are seeing them as a low-risk way to improve their chances of having a successful retirement.

How do annuities work?

With fixed deferred annuities, you make an early investment that typically earns interest rates above other alternative guaranteed options with no investment market risk¹. After a period of time, you can convert the account to an immediate annuity, which means it pays you back in regular installments for a certain period or the rest of your life.

Annuities directly address the most important concern of modern retirement, says Jeff Kirkeby, a Certified Financial Planner and regional retirement income consultant with USAA. “One of the major risks to a successful retirement is running out of money. An annuity that provides regular lifetime payments can help address that risk.”

Here are four things to look for in a deferred annuity: 

1. Strength of financial institution: Ratings agencies like A.M. Best, Moody’s, and Standard & Poor’s can help you determine a company’s stability.

2. Interest rate: Of course, higher is better.

3. Bonuses: Some institutions will contribute a percentage of your initial investment — for free.

4. Surrender period: This is the time you must wait to draw your investment without penalty. A longer surrender period can mean higher interest but locks your investment away longer.

Another thing to plan for: The IRS will collect taxes and penalties if you withdraw your money before the age of 59½.

USAA Life Insurance Company’s Flexible Retirement Annuities (FRAs) can be an excellent choice for those looking to take some of the fear out of retirement planning. Here are some things that make them a great option:

  • USAA Life Insurance Company’s FRAs, with a seven-year surrender period, require only a $5,000 minimum investment but allow investments afterward, too — a feature many other annuities lack.
  • USAA Life Insurance Company’s FRAs are unique in this important respect: Seven years after your initial investment, you can make additional contributions without the surrender period resetting. Other annuities restart the clock with each payment you make.
  • You can convert your FRA to an immediate annuity — one that pays you back — without penalty after only one year.
  • USAA Life Insurance Company historically provides industry-leading interest rates — and frequently offers bonuses of up to 3%, which is free money in your account².
  • USAA Life Insurance Company achieves high marks from agency ratings³.

A similar USAA product, the Extended Guaranteed Annuity, requires a 10-year surrender period and $20,000 minimum investment but also boasts a typically higher interest rate.

Find out if a USAA Flexible Retirement Annuity is right for you and other frequently asked questions. Or call 800-235-0482.

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¹Guarantees apply to certain insurance and annuity products and are subject to product terms, exclusions and limitations and the insurer’s claims-paying ability and financial strength.

²Not available in New York. Premium bonus(boost) offer is limited to the purchase of a new USAA Flexible Retirement Annuity only.  The advertised rate shown is the rate currently in effect and is subject to change without notice. Premium bonus amount will never be less than 1% of your first-year premiums.

³A.M. Best: A++, Superior (highest of 16 possible ratings); Moody’s Investors Service: Aa1, Excellent (second highest of 21 possible ratings); Standard & Poor’s:  AA+, Very Strong (second highest of 21 possible ratings). Company ratings represent an opinion of financial strength and the company’s ability to meet ongoing obligations to policyholders.

Money not previously taxed is taxed as income when withdrawn. Withdrawals before age 59½ may be subject to a 10% federal tax penalty.

You may wish to seek independent legal or financial advice before selling or liquidating any assets and prior to the purchase of any life or annuity products. 

Annuities are suitable for long-term investing, particularly retirement savings.

An annuity is a long-term insurance contract sold by an insurance company and designed to provide an income, usually after retirement, that cannot be outlived. There are fees, expenses and surrender charges that may apply.

Interest rate lock periods are subject to change without notice.

Interest rates for new premium payments may not match rates applied to existing contracts. Interest credited to existing contracts depends on when premiums are received and the amount of premiums paid. Once purchased, interest rates may change monthly.

Flexible Retirement Annuity interest rates may change monthly. The interest rate shown is the effective annual rate for premiums received during the month shown and may not match rates applied to existing contracts. Interest credited to existing contracts depends on when premiums are received and the amount of premiums paid.

Flexible Retirement Annuity: ARA33846ST 03-99 (varies by state) in NY, NRA3617NY 05-00 and ASI94832ST 10-11. Call for details on specific costs, benefits, limitations and availability in your state.

Extended Guarantee Annuity: AEG37641ST 05-01 (varies by state); in NY, NEG38001NY 05-01. Call for details on specific costs, benefits, limitations and availability in your state.

Life insurance and annuities provided by USAA Life Insurance Company, San Antonio, TX, and in New York by USAA Life Insurance Company of New York, Highland Falls, NY. All insurance products are subject to state availability, issue limitations, and contractual terms and conditions.  Each company has sole financial responsibility for its own products.