Are there any good annuities

When one spouse dies, the joint annuity will have to keep paying the full amount to the survivor. But if there are two separate annuities, the one for the late spouse would stop paying and the survivor would only receive income from his or her own annuity. Fixed annuities can start paying you immediately, but there's another kind of annuity to consider that will start paying you after a specified period such as 10 years -- that's the deferred annuity. If you end up living a very long life, a deferred annuity can keep you from running out of money too soon.

It can also be a good thing to buy while you're still middle-aged and working, setting it up to pay you throughout your retirement. These examples are as of early Deferred annuities deliver bigger payouts because the insurer gets to hang on to the purchase price and invest that money for years before starting to pay you. The insurer may also be banking on making fewer payments to you since you'll be older when you start getting those payments.

While fixed annuities offer payments that are spelled out in their contracts, variable and indexed annuities offer income that's tied to the performance of the stock market or investments you've selected -- so the income they offer will vary. Variable annuities also generally have an accumulation phase when the money you paid to the insurer grows and a payout phase when the insurer is sending you checks.

The money you pay in is often invested in mutual funds, with the expectation that the sum you've invested will grow over time. Here are some of the appealing features of variable annuities :. Fees represent variable annuities' biggest pitfall. A variable annuity will probably charge you fees for mortality and expense risk often around 1. In addition to that, the securities you invest your annuity money in, such as mutual funds, will charge fees of their own -- 1.

These fees generally will not change a lot from year to year, but mutual fund fees have been declining over the past few decades. These fees add up, making many alternatives to variable annuities look better in comparison. The above-average fees, for example, which exclude extra fees such as a death benefit, total 2. The Securities and Exchange Commission has warned, "For most investors, it will be advantageous to make the maximum allowable contributions to IRAs and k plans before investing in a variable annuity.

Their fees can be as low as 0. That volatility scares some people, so they're happy to hear about indexed annuities, which often promise no chance of losing money or a guaranteed minimum return. Those promises come at a cost, though. If you read the fine print on indexed annuities -- as you always should before investing in one -- you'll see that while your downside is indeed limited, so is your upside.

Your gains are constrained in a variety of ways. For starters, there's the "participation rate," which measures what portion of the underlying index's return you might receive in your investment's return. That might seem pretty good, considering that you're promised little or no losses in the investment. But wait -- there's a cap, a strict limit on how much you can earn. The news gets worse, too. There often are annual fees that can be subtracted from the return, and they can make quite a difference.

The folks at Fidelity crunched some numbers to show how performance limiting indexed annuities can be. That's a hugely meaningful difference. There are other ways to set up income streams for yourself. As with deferred variable annuities, you can buy low or high-cost immediate annuities. Both Vanguard and Fidelity offer annuity bidding services so you can shop your annuity among a number of well-rated insurance companies; the transaction charges are low and transparent.

You can find other effective annuity shopping services at Income Solutions and ImmediateAnnuities. Annuity salespeople don't like me Create a do-it-yourself pension What happens if your insurance company fails? Individual investors and advisors often worry about insurance company bankruptcies -- they point to AIG as the latest example of why you shouldn't buy an annuity.

But no AIG annuity policyholder suffered any losses, and there are good reasons for this. First, the life insurance subsidiary of AIG remained healthy throughout the crisis, and creditors of the AIG parent company could not touch the assets of their life insurance subsidiary.

Even if the life insurance subsidiary of AIG became insolvent, most insurance policies are protected by state guaranty associations. Because insurance companies are highly regulated and very conservatively managed, there have been very few insurance company bankruptcies, unlike bank bankruptcies, which happen much more frequently.

In the few instances of insurance company insolvencies, benefits have been protected by the state guaranty association, or another insurance company has stepped in and taken over the policies.

As a result, there have been very few instances where policyholders have lost money when an insurance company goes bankrupt. For an excellent article that describes the low risk of insurance company bankruptcy, read How Safe Are Annuities? Here's the bottom line: Annuities can be the Rodney Dangerfield of financial products. But they deserve your respect and consideration.

And as with any important product or service that you'd buy, you need to do your homework to make sure you're getting the best deal. Learn More.

Compare Top Annuity Companies Sort. Best Rated. Most Reviewed. Highest Rated. Show all. Types of annuities Fixed annuity A fixed annuity sets a guaranteed payout for the rest of the beneficiary's life. Variable annuity A variable annuity's payout stream is determined by the performance of an underlying investment. Indexed annuity A combination of a fixed and a variable annuity is known as an indexed annuity. Immediate annuity Immediate annuities begin to pay a short period after the investment is made.

Deferred annuity Any money earned by investing in a deferred annuity will be accumulated until the payout is set to begin. How to choose an annuity Expenses Annuities have a reputation for becoming accompanied by hefty fees.

Surrender fees: Be sure to understand the surrender fee that will be paid if the money is taken out of the annuity before the contract time period is up. Commissions: Similar to investment products, annuities are bought and sold on the market, and an advisor or agent makes a commission from the sale. This charge is paid by the consumer. Monthly fees: Annuity monies are invested, often in mutual funds.

These funds usually incur fund management fees, and the costs are passed on to the consumer. Funding options The initial funds used to purchase an annuity can come from many sources. Single payment: The simplest option for consumers who have a lump sum of money and want to put it into an annuity is to write a check or wire the money to the company. Series of payments: Some annuities allow consumers to initially fund the account with a small amount of money and then add to the principle periodically.

This is a form of saving while growing money for retirement. Social Security: Consumers can choose to reduce their Social Security benefits in the near term and use the savings for an annuity for the long term. Consumers should carefully consult a financial advisor regarding this option. Investment options Annuity funds are invested in various markets.

Immediate annuities: An immediate annuity offers, as the name implies, immediate results. You make a lump sum payment and immediately or almost immediately begin to get a guaranteed monthly payment. Immediate annuities generally are paid out for the rest of your life, but they can also be paid out over another set period of time that you specify.

Fixed annuities: When you buy a fixed annuity, your rate is locked in for a guaranteed amount of time ranging from one to ten years. Your rate might still fluctuate, but it will never go below the amount you set with your fixed annuity.

Variable annuities: A variable annuity is spread out over several investment accounts, making it similar to a mutual fund. Generally, variable annuities are not advised since The return on the account is based on the performance of these funds and not on a fixed amount. However, it does make sense in certain situations, especially if you are open to risky investments for the potential of a high return and you already have a vibrant investment portfolio.

Equity-indexed annuity: An equity-indexed annuity combines the best of fixed and variable annuities by offering a fixed rate and payments while tying your money to an index to allow for a higher growth potential than a regular fixed annuity. Payout options When purchasing an annuity, the consumer can choose how the future payments will be made. Guaranteed period: This option provides a guaranteed number of payments.

Upon death, the payments continue to a beneficiary for a set period of time. Lifetime payments: The guaranteed payment in this case is for the lifetime of the annuity holder only. This option provides no survivor benefits. Lifetime payments may be appropriate for those with no beneficiaries. Survivor payments: Popular with married couples, this type of payment will continue for the life of the holder and, upon death, will then continue for the life of the beneficiary as well.

Withdrawal options There are several ways to withdraw money from an annuity. Annuitization: This option converts the current value of the annuity into a stream of payments. It provides a guarantee of steady income for the life of the annuitant or can provide steady income to beneficiaries after death of the annuitant, based on a chosen time period. Payments can be made using a fixed amount or a variable amount. Systematic withdrawal: With this option, the consumer chooses how much and when payments will be made.

This can include withdrawing only the earnings or withdrawing the principal and the earnings. However, there is no guarantee of payments for life when making withdrawals. Lump sum: It's possible to take the entire lump sum of an annuity's value; however, the investment gain will be taxed as ordinary income.

Company stability The FDIC does not back annuities, so if the insurance company goes out of business, there won't be any payouts. Credit quality: Most companies with high ratings from the major financial rating services will readily present this information. If it's not obvious, consumers should research the company using the major rating agencies. Financial strength: In addition to ratings, the number of assets under management and the cash reserves available can make a statement about the strength of a company and its annuity payment ability.

Company history: A company's history is a good place to start when researching its stability. Consumers should find out details such as how long the company has been in business and how may annuities it has underwritten. Who should invest in annuities?

Savers Annuities are an option for consumers who want to let their money grow and at the same time avert taxes on income. Savers plus income generators This group of consumers wants both the ability to grow income and still have access to assets. Retirees For those who are now living from their savings, an annuity can create a predictable and guaranteed stream of income for life. Social Security recipients Individuals who have a Social Security or pension plan income may want to use an annuity to supplement these sources.

Can you lose your money in an annuity? A fixed annuity, however, guarantees a rate of return and a predictable payout. You could also lose money if you buy an annuity and the insurance company goes under, though states have guarantee funds to protect policyholders up to certain limits. What is the average rate of return on an annuity? It depends on economic conditions, annuity fees and the type of annuity.

Fixed annuities return lower rates but guaranteed returns. Variable annuities have returns tied to an underlying portfolio of investments, so they come with the highest amount of risk. Indexed annuities pay yields according to the performance of a market index and have protection against declines in the market. Is variable or fixed annuity better? It depends on how much risk you want to take. Fixed annuities have a guaranteed rate of return.

Variable annuities have the chance to earn a higher rate of return, but you have no protection against market losses. Is an annuity a good investment?