Starting an annuity is a great step towards a financially sound future. But how do you get one started? You should be able to start an annuity with $5,000 to $10,000.
How Do You Start an Annuity?
When you decide to buy an annuity, you are deciding to convert a lump sum of money into a steady, guaranteed income stream.
The first step to buying an annuity is deciding the type you need. There are two categories — deferred and immediate. Deferred is probably the annuity you’re likely more familiar with. This is where you put in an initial investment, let it grow during the accumulation phase, and receive structured payments over time. The other option is where you put in an initial investment, then immediately start receiving structured payments without a waiting period.
When you sign on to your chosen annuity, you’ll have to make an initial investment. This will depend on how much you decide to invest and the type of annuity.
Initial Investment by Annuity Types
While the average minimum initial investment is anywhere from $5,000 to $10,000, it varies based on the type of annuity you purchase:
- Fixed annuities can cost as little as $2,500 to open, and you can keep contributing over time if you’d like. They guarantee a fixed interest rate on their premium for the accumulation phase.
- Fixed index annuities can open for as little as $5,000. This annuity bases your payout on the performance of a stock market index.
- Flexible-premium annuities can also open for as little as $5,000. Instead of a big upfront payment, deferred annuities are purchased through a series of payments over a long period of time.
- Immediate annuities are typically opened for around $25,000. You will begin receiving payments within a year.
- Single-premium annuities are purchased with a single payment of a minimum of $25,000. This applies to fixed or immediate annuities, so long as the payment is made upfront.
Other Annuity Costs
With your first investment, you will start earning towards a solid financial future. It’s important to prepare for other expenses besides this initial investment as well. Be sure to ask your potential annuity provider about these fees:
- Administration and maintenance fees
- Add-on rider benefits
- Contingent deferred sales charge
- M&E risk charge
- Underlying sub-account expenses
- Surrender charges
- Additional provisions
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