While it can be simple, it rarely is.  There are several things that you need to be aware of.  The primary issue is that when you buy a pension annuity it is a long term commitment.  You only get one chance at it and then there is no rewinding and asking for a refund of all the money you put in.  Which can hurt if you end up finding a better deal later down the line.  So, it is important that you choose wisely when selecting this type of annuity.

To add to the confusion, there are all kinds of different annuities that offer all kinds of different annuity rates.  Which means they can offer different amounts of income for the same amount of capital.

The vast number of different types of annuities including 401k annuities can add to the confusion.

The most conventional form of an annuity is the standard annuity which offers you fixed income throughout the rest of your life.  The amount of income you receive will be known ahead of time and that will offer you the peace of mind of knowing what you can plan for.

There are also profit annuities which relate the total amount of income that you will get to an aspect of you initial sum that gets invested additionally in stocks and bonds.  In this case your annuity inherits some of the risk of these types of investments.

For those who are willing to take on a large amount of risk, there are unit linked annuities.  These are completely susceptible to market fluctuations.

Immediate annuities have to be bought either directly from your matured pension fund or from some cash source.  The bonus of a temporary annuity is that a degree of the annuity get treated as a return of your initial investment, which means it will not get taxed.  Otherwise the entire amount of you pension annuity would be bound by income tax.

Additionaly there are impaired life annuities which are meant for those with a diminished life expectency as compared with someone of their same age in the rest of the population.  These annuities can define differently what “impairment” means, but it is normally a matter of illness or lifestyle issues.

Conclusion

As we’ve displayed converting pension money into a income paying annuity requires some knowledge to ensure you are making the right choice for you.

Again, different annuity types offer different amounts of income. You want the one that will pay you the most, but risk plays a part in this decision making process.

You would be well served to consult with an independent financial advisor before making a decision of this magnitude.

One of the issues with buying an annuity at retirement is that employees can’t predict what the interest rate will be at that time, and thus may not get the returns they want. But with some 401k annuities, employees can buy the product at a time when they believe that interest rates are at a peak and set that rate for the term of the contract.

401k annuities can be particularly attractive for employers that want to retain and attract older workers, a more common trend as many anticipate a talent shortage.

Experts agree that the concern around having enough for retirement will grow in coming years, but many are skeptical about whether younger employees will have high demand for 401k annuity products anytime soon.