Like any investment, timing and diversification do make a difference. When you buy an immediate annuity you must do the two things below to protect yourself against a faulty carrier, and against putting all your money to work at the wrong time.
1. Diversify Across Insurance Carriers
Make sure the amount you invest in an annuity with any single insurer is within the maximum limits covered by your state's insurance guaranty association. (Most states have minimum guaranty limits of $100,000 in withdrawal and cash values for annuities.)
In addition, choose insurance carriers with high ratings.
2. Spread Your Immediate Annuity Purchases Over Time
By purchasing immediate annuities during times where interest rates are average to above average you can lock in higher payout amounts. If you purchase an immediate annuity when interest rates are unusually low, you are locking in lower payout amounts.
Be wary, however, about waiting too long for rates to rise; rather than trying to guess where rates will go, stagger your purchases over a five to ten year time period, investing larger amounts and thus locking in more guaranteed income in years where rates rise, and less in years where rates decline.
