Investing in Annuities

Annuity investments are sold by insurance companies. They pay a stream of income to you during your lifetime, usually after you retire. If payments start right after you purchase it, you have an immediate annuity. If payments are delayed to the future, you have a deferred annuity.

The amount of income depends on the type of annuity you buy. A fixed annuity will provide a set amount of income monthly. A variable annuity will provide income based on the stocks, bonds, and money market accounts you invest in and how well they perform. Deferred variable annuities can be especially confusing—making it difficult for investors to understand what’s being recommended to them. While they can be an appropriate investment under the right circumstances, deferred variable annuities have restrictive features and can cost you a lot of money in fees and taxes if you withdraw money early. Annuity salespeople also can be aggressive, so, before purchasing any kind of annuity, ask the person who is recommending it to you:

• How long will my money be tied up? Are there surrender charges or other penalties if I withdraw funds from the investment earlier than I anticipated?



• Will you be paid a commission or receive any type of compensation for selling me this variable annuity? How much?



• What are the risks that my investment could decrease in value?



• What are all the fees and expenses?