Choose the right form of an annuity to fit your circumstances

Q: I would like your thoughts about annuities. My husband is looking into putting his money from a savings account into an annuity. I have heard from friends that annuities are not a good investment. I will tell you he lost our retirement funds in the 2008 stock market crash. He is 80 years old and still works full time. I am 76 years old, and I work part time.

A: First, you say that your husband is thinking of putting “his” money into an annuity. If the two of you have been married for decades, then half of his money is actually your money, and you should have an equal say in the investments he makes.

Annuities come in many forms, and you need to be sure that the one you are buying is appropriate for an 80-year-old man with a 76-year-old wife. There are two basic types of annuities and many variations of each.

One basic type is an accumulation annuity, in which the annuity is like a savings or investment account. The accumulations may be at a fixed rate or have variable returns based on market conditions. The second basic type turns your initial payment into a stream of income beginning immediately. The income may last for one or both of your lifetimes or for a defined number of years.

Some annuities come with surrender charges (typically 7 percent), which can be assessed for a period of six to eight years after you buy it. You might want to purchase an annuity with no such potential charges.

Be aware that insurance companies that sell annuities typically offer the salesman a commission of 1 percent to 8 percent, depending on the type of annuity being sold. Salesmen can be heavily influenced by these commissions. They can steer you toward an annuity that pays the highest possible commission, even though it might not be the optimal annuity for you.

You should check into the

ratings of the insurance company selling you the annuity. Try to invest with a company that has one of the highest possible ratings from at least two ratings agencies (A.M. Best, Fitch, Moody’s Investor Services and Standard & Poor’s).

One way to help you and your husband make the right decision on an annuity or alternative investment is to meet with a financial planner. Consider a certified financial planner, who is a person who has taken extra classes, passed an exam, promises to abide by strict ethics rules and will generally be knowledgeable about financial planning decisions.

You can find a CFP near you at www.letsmakeaplan.org. Of course, they are also seeking to earn some form of compensation. Be sure to get a clear understanding of how they are paid.

Under Texas law, annuities are exempt from the claims of most creditors. Therefore, many high net worth individuals who are worried about losing their assets in a lawsuit will invest heavily in annuities. These people don’t care about the commissions being earned, potential surrender charges or the lack of control over the investments. Their primary focus is on asset protection.

The information in this column is intended to provide a general understanding of the law, not legal advice. Readers with legal problems, including those whose questions are addressed here, should consult attorneys for advice on their particular circumstances. Ronald Lipman of the Houston law firm Lipman & Associates is board-certified in estate planning and probate law by the Texas Board of Legal Specialization. Email questions to stateyourcase@lipmanpc.com