If you’ve already determined that an annuity strategy may make sense for your own personal situation, then the next step would be to make sure that you choose the right annuities.

This may seem a little difficult or intimidating on the surface to do.  But today I’m going to walk you through an easy 3-step process that you can use to help you make a better decision about choosing the right annuities to meet your specific retirement goals. Let’s get started.

Step #1: Think About the Goal(s) You Need to Accomplish

For example you may need to accomplish the goal of having more income in retirement.  If that’s one of your primary goals, then think about how much income you may need.

To do this, first think about your monthly retirement expenses and get a good estimate on those expenses. If you are not retired yet then do your best to try to estimate what your monthly expenses may be when you do finally retire.

Next, determine how much income you already will have when you retire.  For most people this will include Social Security. How much Social Security income will you have?  Write that number down.

Do the same thing for any other sources of income that you may have in retirement (like a pension). Write that down so you have an idea of your lifetime guaranteed income sources in retirement.

Now that you have an idea  of how much income you’ll have in retirement determine if you need more to meet your basic expenses that you already calculated.

Do you need more income?  If so, how much?

Now write that number down.

What you have just done in a few simple steps is calculate how much income you need to meet your basic living expenses in retirement.  This is a good starting point to determine how much in additional lifetime guaranteed income you need in order to fund your retirement for the rest of your life.

You also need to determine what inflation is going to do to your spending needs in retirement in 5 years from now or maybe 10 years from now. Inflation will most likely cause the cost of things you buy to be higher. So using a very common estimate of inflation of 3% each year, you can estimate approximately how much additional income you will need in 5 years, 10 years, or even 15 years from now.

Write that number down.

There are annuities designed that can maximize income payments you receive, 5, 10, or even 15 years in the future. If you have an estimate of what additional income you need at future dates, that can help you determine how much in annuity investment it would take to guarantee that future income.

But what if you have additional goals than just guaranteed income?

Maybe the goal you need to accomplish with an annuity is protection of your principal. If that’s the case then determine what percentage of your portfolio do you want to help protect from market losses.

Is it 10%, 20%, 30%, 40%, or more?  Whatever the number is for you that would make you feel more comfortable with your retirement investment plan, write that number down

This is an estimate of the funds you may want to use in a fixed annuity that is specifically designed to maximize potential growth, while at the same time being a very conservative investment that does not have market risk.

Or maybe you have a different goal. Maybe you want to use an annuity to help increase the legacy that you leave to your heirs. This may include your children or your grandchildren.

If this is your need, then try to answer the question:

“How much money do I want to leave behind to my heirs to have a positive impact on their lives?”

After you have figured out that number ask yourself, “Can I afford to leave this much behind or will I need this for my own needs?

Once you have an idea of what you can afford to leave behind to have a positive impact on the world, then determine how you want to leave it behind. There are two primary ways you can leave this legacy behind:

  1. You can leave it behind in a lump sum or
  2. You can leave it behind as a stream of income payments

Which do you want to do?  If you want to have a positive impact on your heirs but you may be worried that some of them are not responsible enough to handle a lump sum all at once, then you may want to consider leaving them a stream of income payments.

If it makes more sense to you to leave a lump sum then you can plan for that as well.

It’s important to understand the goals that you were trying to accomplish with your money. Once you understand these goals it’s going to help you pick out an annuity strategy that better meets those goals.

This is just a very simple and logical approach to your planning. It’s a process you can stick with to help you make better decisions to help achieve better results.

Some annuities do better at maximizing income. Other fixed annuities do better at safely growing your money without market risk.  And some annuities do a better job at maximizing the legacy that you leave to your heirs.

Once you understand your goals you can better choose the right strategy to help meet those goals.

Step #2: Determine Your “Absolutely-No-Way-Would-I-Do-That” Limits

Annuities can provide very good benefits for many retirees. But like all investments they have some drawbacks.

For example, you may determine that there is absolutely no way that you would ever buy an annuity that has a surrender charge period of over 10 years. If that’s the case, then make sure you eliminate that from your choices of annuities to consider.

Another example would be that sometimes annuities offer less flexibility on getting access to your original deposit. Single premium immediate annuities typically begin paying income immediately, but you lose access to the lump sum that you put into it.

Those types of annuities may give you a slightly higher guaranteed income than others. But you may be unwilling to invest in anything that causes you to lose access to the lump sum. If that’s the case then cross them off the list and look at other annuities that provide you a guaranteed lifetime income while still offering you the flexibility to access the lump sum if your plans change in the future.

And yet one more example… some annuities may have fees. Traditional variable annuities are the type that have the worst reputation for having the highest fees.  But even some fixed annuities may have these as well.

Income riders usually come with a fee attached. They offer a great benefit of guaranteed lifetime income while simultaneously giving you the flexibility to access your lump-sum if your plans change. But they may have an approximate 1% fee for this benefit.

There may be a limit to the fees you are willing to pay to get the benefits that you need. Once you have a general idea of what that limit may be then write that down and make sure not to consider an annuity that  crosses that limit.

Step #3: Look at Different Annuity Options to Meet Your Needs

Now that you have a good idea of what you need to accomplish and you also have a good idea of certain limits that you’re not willing to cross, you can now look at different annuity options.

One easy way to do this is using an independent advisor. This is someone that is not tied to any single insurance company. Instead, they can shop around to help find you the right annuity that will best meet your needs within the parameters that you have set.

The advisor is making the insurance companies compete for your business by shopping around. Once again, this is doing a simple thing that is just logical. It’s how you would approach making any big purchase in life. 

To make sure that this independent advisor is doing adequate due diligence for you, ask them to show you 3 options of annuities for each goal that you need to accomplish.

If you have multiple goals to accomplish then you should be looking at multiple annuities.

This would mean looking at three different annuities for income guarantees. This would also mean looking at three different annuities for preservation of principle with conservative growth if that is also one of your goals. And if maximizing your legacy that you leave behind to your heirs is important, look at three different options for that.


Those are the 3 steps to help you choose the right annuities for your needs. If you stick with this process it will help you make a better decision.

Pass this article / video along if you know someone that is retiring soon and is contemplating purchasing an annuity with their 401(k) rollover funds. This article / video could seriously help them make a better decision.

Warmest regards,


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