The amount you put into an annuity is determined by the type of annuity you choose and your financial objectives. You can start a fixed annuity or single premium deferred annuity with recurring premium payments for as little as $2,500 to $5,000, or you can start an immediate annuity for as little as $25,000.
Is A Minimum Deposit For A Single Premium Deferred Annuity Required?
The amount of money required to begin an annuity is determined by the type of annuity chosen. If you compare various annuities, you should be able to find an annuity for less than $10,000. Some of the MYGAs (multi-year guaranteed annuities) are $2,500; however, most fixed annuities require a minimum investment of $5,000 to $10,000.
You can continue to invest in a deferred annuity up to one or two million dollars, or even more if the firm offering that annuity agrees to grant to you a special exception.
Different Annuity Types Necessitate Varying Investment Levels
The minimum investment amounts for various types of annuities differ based on several criteria. This is largely due to the way they are designed to be purchased, the method in which they pay out and the kind of long-term objectives they meet.
Minimum Annuity Investments By Type
Fixed
For a set period of time, fixed annuities and MYGAs guarantee a fixed interest rate on their premium. A fixed annuity can be opened for as little as $2,500. Over the life of the annuity, you can continue to contribute up to one or $2 million.
Fixed Index Annuity
The performance of a market index, such as the Dow Jones Industrial Average or the S&P 500, determines your payout in a fixed index annuity. Some firms may provide a fixed index annuity for as low as $5,000.
Annuity With A Flexible Premium
Flexible-premium annuities are deferred annuities that are purchased over a long period of time through a series of payments. Some providers will allow you to create a flexible-premium annuity with a $5,000 initial payment.
Immediate Annuity
Immediate Annuity is a type of annuity that is paid out right. Immediate annuities are purchased with a single payment and start paying out after a year. With some companies, the minimum investment for an immediate annuity is as little as $25,000.
Annuity With A Single Premium
A lump sum payment is required to obtain a single-premium annuity. This includes immediate annuities, which are often purchased near retirement, and single premium delayed annuities, which you can purchase well in advance of the time period when you will start to withdraw money, allowing it to increase in value over time. Investments as low as $25,000 are possible.
It is important to determine how much money you will need to invest in total, and how an annuity will fit into your long-term financial plans. Because an annuity locks up your money, reducing your liquidity by that amount, you should be confident in knowing what amount of money you may need to have available at all times.
Fees and Other Charges
When purchasing an annuity, it is critical to understand the annuity costs and commissions. These can differ greatly depending on the provider, the type of annuity you select and how you personalize your annuity.
Fees & Costs To Consider When Buying An Annuity
Fees for Administration and Maintenance: These costs are to cover the management of your annuity account by the provider.
Benefits of Adding a Rider: Riders are optional features that you may include in your annuity contract. They can provide you with flexibility, but are at an additional cost. Be sure to inquire of their individual costs.
Deferred Sales Charge Contingent
This fee, also known as a CDSC, is imposed if you cancel the annuity before the contract’s expiration date.
Risk Charge For M&E
The mortality and expense risk charge is a price you pay to ensure that your costs remain constant over time.
Expenses in the Underlying Subaccount
Subaccounts are separate account monies to which a variable annuity is allocated. You will be charged a fee to cover the costs of managing the funds, which may vary depending on the fund in which you invest.
Charges Of Surrender
You will have to pay surrender charges if you cancel or cash out the annuity sooner than seven years. These fees can range from 5% to 25% of the amount you withdraw.
Additional Requirements
Inquire with your agent about any other additional costs, if applicable, that the firm may impose.
Variable annuities have the highest fees of any type of annuity, despite the fact that those fees vary greatly. These normally cost 2% to 3% of the annuity’s value per year.
An Example Of How A Minimum Annuity Would Be Paid
In general, the more money you invest into an annuity, the higher your payout will be. The amount you receive depends on the type of annuity you purchase. You can use an annuity calculator to determine how much money you will receive.
In the case of instant annuities, your age, gender and investment amount all factor into your monthly payout. Life expectancy has an impact on the variation in monthly payout amounts between men and women. Because women typically live longer than males, the total payout is spread out over a longer period of time for females.
If, for instance, you are a male who invests the minimum requirement of $25,000 in an instant annuity at the age of 67, which is the age at which you are eligible for full Social Security benefits. You would start receiving $125.95 monthly installments immediately and for the rest of your life. If, however, you used a portion of your retirement funds to make a larger investment of $125,000, your monthly payout would be $629.74.
The type of annuity, interest rates or stock indexes, your age when you buy the annuity and your estimated retirement age, are all factors to consider when selecting how much to invest and which type to invest in.
Other Things To Think About
Keep in mind that annuities restrict your access to the money you’ve invested. You will have to assess your liquidity against the needs that a lifetime annuity income can meet. This is true whether you are thinking about converting a portion of your retirement funds to an annuity shortly before retiring, or deciding how much to invest in annuities vs other assets in your 30’s or 40’s.
Tying up all of your money into an annuity is generally not a good idea. The bottom line is that you should consider what you want your money to do for you and then discuss that with your financial counselor or the annuity salesperson.
Work With Pillar Life Insurance
If you have any questions regarding single premium deferred annuities, contact our professional staff at Pillar Life Insurance. We are more than happy to answer any questions you may have about starting the process of purchasing single premium deferred annuities, and all of your future investing services.