- 1). Gather information from life insurance companies about both fixed and variable annuities. Fixed annuities are annuities that pay a fixed interest rate. Variable annuities are annuities that pay a variable rate of return based on mutual fund sub-accounts. Additionally, gather information about equity indexed annuities. These annuities have the potential to pay more than a fixed rate annuity because the insurer pays interest based only on the upward movement of the stock market while ignoring any losses. No dividends are earned in this type of annuity so the returns may be less than a variable annuity.
- 2). Move your savings into an annuity that suits your investment objectives. If you are a conservative investor, you'll need to consider a fixed or equity indexed annuity. Both of these types of annuities guarantee your investment principal and interest against loss. If you are a more aggressive investor or want to be able to control what you invest in, then choose a variable annuity. Also, make sure you choose a contract with the lowest overall fee structure and the highest potential interest crediting.
- 3). Manage your annuity investment. When you invest in an annuity, you may be tempted to simply leave the money alone and accumulate interest. This may work with an ordinary fixed interest annuity, but an equity indexed annuity or variable annuity may require extra work on your part. Make sure you choose equity indexing options with the highest interest crediting potential as time goes on. Some life insurance companies can change the fee structure during the contract, making some interest crediting options inside of the indexed annuity more attractive than others. With variable annuities, you must pay attention to the fund manager who is managing the investments of the mutual fund in which you are invested. You may need to change your mutual fund investments over time, especially as you get older to reduce the amount of risk you take in your variable annuity.
- 4). Hold your annuity until it matures. All annuities have maturity dates. Maturity dates represent a future time period when the annuity will be fully paid out (in the case of an immediate annuity) or the annuity will not charge a penalty for liquidation (in the case of a deferred annuity). If you try to cash in a deferred annuity early, you will pay penalties from the insurance company and a 10 percent penalty from the IRS, plus income taxes if the annuity is cashed in prior to age 59 1/2.
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