Annuity is fine, if fees are low

Q: Should I buy annuity for retirement income?

A: An annuity may seem like a great idea for a worry-free retirement. After all, you give a company some money, and you get a stream of guaranteed income for the rest of your life, starting either right away (immediate annuity) or at some point in the future (deferred annuity). This can certainly give retirees peace of mind, especially when compared to a stock and bond portfolio that can fluctuate in value significantly over time. However, there are a few things you need to know about annuities.

First, annuities are notorious for having high commissions and fees. It’s not unheard of for annu- ities to pay sales commissions of up to 10%, and some annuities can charge hefty annual fees.

As a result, it’s generally a better idea to approach an insurance company that sells annuities directly, as opposed to buying one from an adviser or salesperson. If you are working with an adviser, ask if he or she is bound to the fiduciary standard. Also, it’s important to realize that an annuity is only as safe as the insurance company that sells it.

Finally, annuity payouts are based on interest rates, which are rather low right now. In fact, there have been times when annuities paid out nearly double what they do today. If interest rates continue to rise, annuity payouts should rise as well, making the income stream you can buy significantly more attractive.