Over the last twenty years we have seen large amounts of investment income vanish in market volatility. At the same time all manner of supposedly “safe” retirement mechanisms including pensions have become unreliable. So it’s not surprising that many people ask how safe are annuities?

The answer to this question is that most annuities are very safe. They are guaranteed by both major insurance companies and state governments. There are some limits to these guarantees that you should be aware of though.

Only as Safe as the Company that Issues It

An annuity is only as safe as they company that issues it. A plan issued by a top rated insurer like New York Life will be very secure. New York Life has been around over 150 years. More importantly it has received high rankings for financial security from the Big Four ratings firms.

These companies A.M. Best, Moody’s, Standard & Poor’s (S&P) and Fitch’s rank companies for their financial stability. New York gets the highest financial ratings from all of them. As long as an annuity is issued by a highly-ranked insurance company it should be fairly safe. Persons with one will receive the payments.

Annuities are not insured by the FDIC but they are insured by state governments. Most state governments insure annuities for up to $100,000 and some states insure them for up to $500,000. This provides an added layer of protection that most retirement products lack.

The Insurance Industry

The insurance industry itself is very secure and has survived serious economic turbulence in the past. Major insurers like New York Life and John Hancock survived the Civil War, several depressions in the 19th Century, World War I, The Great Stock Market Crash of 1929, the Great Depression, World War II, the Cold War, inflation, the stock market bubbles in the 1980s and 1990s, the Economic Meltdown of 2007-2008 and the Great Recession. Therefore they are likely to be around and making annuity payments for centuries to come.

It should be noted that some sort of outside catastrophe could destroy the insurance industry. The odds of such a catastrophe occurring are much lower than a collapse of the stock, real estate or gold markets. History indicates that the prices of stocks, gold and real estate collapse every 20 to 30 years. The major insurance companies have weathered those storms and kept their value. The risks in annuity investment are far lower than those in other vehicles.

Not all Annuities are Created Equal

There are some kinds of annuities that are less safe than others. A straight fixed annuity issued by a top rated company is one of the safest investments in existence. Such a plan is guaranteed to payout but the value of the payments can be destroyed by inflation.

Indexed annuities that are partially invested in the stock market can offer a higher rate of return. Unfortunately they can be vulnerable to the same forces that make the stock market so volatile. There are some indexed plans that have mechanism to lock in higher rates of return. If Jane’s indexed annuity had a rate of 12% one year and 5% the next, she would receive the 12% rate of return. Not every indexed plan has this feature so you have to be very careful when shopping.

Something else to remember is that there are costs to withdrawing funds from annuities early. Many plans feature vesting charges and other fees so you will have to pay to get your own money. People under 59½ years old will usually have to pay a 10% tax penalty on early withdrawals because the IRS considers annuities tax-deferred retirement plans. Therefore it is not a good idea for persons under 50 to place a lot of money in an annuity even though it is usually a very safe investment.

Steven Hart is a freelance writer and a Financial Advisor from Cary, IL. He writes about Annuity topics like Single Premium Immediate Annuities, What is an Annuity, and Current Annuity Rates.

Security and stability are the two most important factors when picking an annuity company. After all you want the company to be around and sending you a payment when you are 90 years old and unable to work. The reason you buy an annuity is to keep yourself from being broke and retired at some point in your life.

Characteristics of a Good Annuity Company

The best way to ensure that your retirement investment will be secure is to pick a top annuity company. A top annuity company will have these characteristics: it will have a large market capitalization (a lot of money), a management team that refuses to make risky decisions, and high ratings from the four big insurance industries ratings firms; Fitch, A.M. Best, Moody’s and Standard & Poor’s (S&P). These companies rate the companies for factors like market capitalization and investment strategies.

There are several websites that list this information. A top company will get the highest or next to highest rankings possible form each firm. The best companies will be evaluated by all four companies and get a top rating from each.

Unfortunately not every company offers every kind of annuity. Therefore it is best to determine the plan that you want and pick the most secure company that offers that plan. This way you can get the most secure product possible and lock in long term income.

Some Really Good Annuity Companies

There are some really good annuity companies out there. Unfortunately these organizations will not always advertise their products so may have to go to them. In most cases you will need to locate an agent that sales their products in your area. Quotes on prices for annuities from these insurers can be found online.

John Hancock Financial is an old-line Boston insurance company that has been in business for nearly 150 years. It is currently owned by Canadian insurance giant Manulife and has a market capitalization of $16 billion. Hancock specializes in variable annuities. It was rated A++ (the highest rating) by A.M. Best, Aa3 (the fourth highest rating) by Moody’s, A+ (the second highest rating) by S&P and AA (the third highest rating by Fitch’s).

Jackson National Life Insurance has only been around for 50 years but it is one of the biggest and most respected players in the annuity game. Despite its age Jackson has a capitalization of $10 billion and it is owned by one of the biggest insurers in the world the Prudential. Jackson offers a wide variety of annuity products but specializes in indexed annuities. Jackson was rated AA-(fourth best) by Fitch’s, AA(second best) by S&P, A1(fifth best) by Moody’s and A+(second best) by A.M. Best.

New York Life is America’s largest mutual insurance company. Long considered the gold standard in insurance companies, New York Life specializes in fixed annuities. New York Life is one of the few companies to receive the highest ratings from the Big Four ratings firms: an A++ from A.M. Best, a AAA from S&P, an Aaa from Moody’s, and an AAA from Fitch.

MetLife another US insurance giant known for its advertising campaigns offers variable, fixed and income annuities. MetLife has more than Snoopy going for it the company has $14 billion in capitalization. It also has some great financial ratings AA (second best) from Fitch, Aa2 (third best) from Moody’s, AA- (fourth best) from Standard & Poor’s, and A+ (second best) from A.M. Best.

ING the Dutch financial giant has become one of the largest and best respected providers of annuities in the US. The company has purchases several large US insurance and annuity providers including ReliaStar. ING offers fixed, immediate and indexed annuities. ING has received some very high financial strength ratings: A+ (second best) from A.M. Best, AA-(fourth highest) from S&P, Aa3 (fourth highest) from Moody’s and AA-(fourth highest) from Fitch.

There are many other good annuity companies out there so be sure to shop around. The average person should have no problem finding a good secure annuity that meets his or her needs.

Steven Hart is a freelance writer and a Financial Advisor from Cary, IL. He writes about Annuity topics like Annuity Definition, Annuity Rate, and Best Annuity Rates.