I must admit that annuities are one area of personal finance where I'm clueless. My perception is that they're an expensive co-mingling of insurance and investments, but this may be way off. I'm open to learning more.
This piece is a first step in learning more. It's from Yahoo and talks about how annuities can provide lifetime income. First, he sets the scene:
Most of the time, I talk to you, dear readers, about how to prepare for retirement starting some years before that time. But what about the person who is already in retirement or imminently retiring? The time for "primitive accumulation," as a famous crank once called it, is long past. Now the goal is to get the most money possible that will pay your bills and allow you to keep paying these bills until you enter immortality.
Then he offers a solution:
There are many aspects to solving this problem, but one comes to mind right away: Purchase a lifetime immediate annuity. This is a contract you make with a financial entity, usually an insurance company, which, in return for your initial payment, guarantees to make monthly payments to you -- for the balance of your life.
The best investment my father and mother, both distinguished economists, ever made was in VAs. Six years after my parents' death, the VAs are still paying out handsomely, and the payments are an immense multiple of what my parents paid in.
Sounds like a glowing recommendation. But he does add that there are some things to be careful of:
There are several little problems here, though. One is that the fees for annuities, especially, VAs, can be complex, hard to understand, and high.
Also, the kinds of VA features available are amazingly wide. Make sure you understand what every fee is for.
While annuities grow tax free until withdrawal, their fees may be such that they outweigh the tax advantages.
He ends by coming clean:
Full disclosure: I'm Honorary Spokesperson for the National Retirement Planning Coalition, and some of its sponsors are insurers, and I do get paid for this work.
I'm sure that some of you out there have thoughts on annuities. Want to share them with the rest of us?
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