Does a variable annuity offer multiple funding options in case you change your investment strategy a few years down the road? Look for a range of funds to diversify your retirement savings as your needs change.

Will your ordinary income tax rate be greater than the current capital gains rate when you begin to take distributions (possibly at retirement)? If so, you may pay more in taxes by choosing annuities over another investment that would be taxed at the capital gains rate. Keep in mind, however, that your money in an annuity is accumulating on a tax-deferred basis. By selecting an annuity, you avoid paying yearly ordinary income tax on the earnings while your money compounds and grows.

What is the insurance company's rating? While anyone who is properly licensed to sell insurance products (e.g., banks, brokers, agents) can sell annuities, the annuity contract is issued by an insurance company. So, you'll want to consider the company's rating. Is it financially secure, with a good claims paying record? While this is most important for fixed annuities, it is relevant to any guarantees (e.g., death benefit) in a variable annuity as well. Checking up on an insurance company is easy at your local library, or you can contact your state's Department of Insurance. A.M. Best, Standard & Poor's and Moody's all rate the financial stability of insurance company general accounts. Morningstar and VARDs evaluate and report information on variable contracts only. Variable annuities are rated by independent sources such as Lipper Analytical Services, VARDs and Morningstar. It's a good idea to choose an annuity from a company that gets high marks from at least two independent rating sources.