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by wtschenck on October 23rd, 2009
There are many types of annuities and they have various uses.
Fixed annuities are familiar in many ways because of their use by many people as an alternative to CDs. They are low-risk, and have crediting (interest) rates similar to CDs. The attraction for some (especially older) people is that the interest accrues tax-deferred, and in the event of death the proceeds (of any annuity) bypass probate and are paid directly to a named beneficiary without any legal involvement. Of course, any annuity may be converted to a stream of income that one cannot outlive. No other investment offers this guarantee.
Variable Annuities have come under fire in recent years by lots of attackers. Let's just say that nothing is ever black and white. Some VAs do have features that stink out loud. However, most offer features that make them good investments, for the right person in their particular situation. For example, even though they are tied to market-based crediting mechanisms, many of them offer a feature that returns all of the paid-in value at death, even if the actual account value had fallen drastically due to market declines. Some newer VAs guarantee payments for life or a given period at a stated rate without annuitizing the contract. VAs are complex contracts and should be explained thoroughly and carefully by a registered representative of a good issuing company.
Get a referral to a good advisor from a friend or other trusted advisor.
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You're reading What's the point of an annuity? You just give them all your money and they give back a little bit at a time? Who would want to do that?
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