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 Best CD Rates
Types of Annuities
Information to help you pick the best annuity for your needs including "Key Feature Comparison Tables."

Background.  If you are like most people, you don't suddenly wake up and say "I need to buy an annuity."   Annuities are insurance products that usually carry high fees, surrender charges and other items that are great for the annuity seller but not always for the buyer. A CD with a great rate nearly sells itself (see
Best CD Rates)
while most annuities need commissioned sales people to sell them.

Before you make any decisions, get as much information as you can.  Check out half a dozen companies for annuities, CDs, mutual funds, insurance or whatever product you are considering.  Make a table of key features that matter to you.  I will add some "key feature comparison tables" later to this web site so check back.

For the vast majority of people, your are best to
  • Fixed InvestmentsFor the money you want in fixed income investments (like CDs, Fixed Annuities, etc.) manage your own money by using CDs and a "Total Bond index fund."  I recommend the Total Bond Fund from Vanguard in my investment newsletter.
  • Stock Market Investments:  Use low cost index funds for 80 to 100% of your money allocated to the stock market.
  • When to consider an annuity:  You don't need to think about annuities until you have taken full advantage of:
    1. Your company matching of your 401K contributions
    2. Your ROTH IRA
    3. Any remaining money you can put into your 401K
    4. Taxable contributions remaining:  Index funds and individual stocks usually give better return since they don't carry added insurance fees
  • Insurance:  Get term life insurance with no investment add ons.  Why pay the insurance companies high fees for "whole life" when you can get better investment returns on your own.  Buy your insurance from insurance companies and do your investing elsewhere. 
Annuity:  Definintion from the SEC:  "An annuity is a contract between you and an insurance company, under which you make a lump-sum payment or series of payments. In return, the insurer agrees to make periodic payments to you beginning immediately or at some future date. Annuities typically offer tax-deferred growth of earnings and may include a death benefit that will pay your beneficiary a guaranteed minimum amount, such as your total purchase payments."

Like most insurance products, you save money if you can "self insure."  Most people are not equiped to understand how thes
e complex products work so they pay "experts" fairly high fees in exchange for "peace of mind."


Common Mistakes with Annuities:
  • Do not put IRA money into an annuity.  IRAs are already tax deferred.  The only reason to put your IRA money into an annuity is to collect fees and lock you into that investment for a long time.  If ANYONE advises you to put IRA money into an annuity, smile, say "thank-you for your time" and walk out.
  • Not taking advantage of better tax deferral methods first.  Make sure you follow steps 1 through 3 under "Stock Market Investments" above.  You can also put your fixed income investments in your 401Ks and ROTHs.
When annuities make sense.
  • Leaving money to a disabled child or someone you believe will have difficulties managing the money well.  An annuity can guarantee income for their life.

  First and foremost, I don't sell annuities or CDs.   I write for several web sites about investing and I edit an investment newsletter where I teach people my "core and explore" approach to investing. Core means place 80 to 99% of your money into a CORE portfolio of well diversified, buy-and-hold, no load mutual funds, ETFs and or blue chip stocks then Explore with the remainder as you learn.  
(More Info) and  (Click for Free Sample Issue)
I am also compensated by advertisers on this site.

I also co-edit "The Retirement Advisor."   Get a Free Fixed Income Primer on page 2 of The Retirement Advisor

Questions:  If you have any questions about annuities or insurance products, my good friend Carol Sun can help you.  Website and email Carol Sun. Note, she sells insurance.  If you want to remain anonymous, then you can post your questions at Suite101 here.


Reference:  SEC on Annuities

Updated 11/20/07

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