Asking questions on TOTV is fine and can be a good place to start, but I hope you are going to do your own homework if you are considering buying an annuity. Actually, this thread will probably leave you with more questions than answers -- and that's not a bad thing.
I never got into annuities because I did not want to -- but you might want to -- so at the risk of sounding like I am giving you a homework assignment, may I pass along a few things for you to think about, to educate yourself.
Things I (sort of) Know (and/or think) about Annuities
1. Some people stop listening after they hear the word 'guaranteed' -- a powerful word, indeed -- and that's all they think they need to know.
GONG!
2. I don't think of annuities as an investment. I think of them as a product because they are sold under a contract. It is like an insurance policy.
3. There are management expenses in those contracts somewhere. The company that sold the annuity invests your money while you get the contracted percentage. I don't think you ever see where your money is invested. It's kind of like you say, "Have at it, but just make sure the check is in the mail."
4. If the insurance company that sells the annuity fails, I think it then goes to some sort of rehabilitation fund. Then another insurance company can go to the state and say it will do the rehabilitating. That could take a while. (I don't know if this backup varies by state. Anyway, I think it is a good idea to know how the insurance company is doing before you buy in.)
5. There are different kinds of annuities. (I will not try to explain them all because I have never dug that deep.) But you can get started by reading up on Fixed Annuities v. Variable Annuities v. Index Annuities.
4. There are sometimes things that can be added to an annuity -- like a death benefit. The extras come at an extra cost to you.
5. I have never bought an annuity, but, as I understand it, there is a 30 day look back, like a window, after you have signed the contract, so you can change your mind. (But I do not know for sure if this is always the case, or if it varies by state or company. Find out, for sure.)
6. That word 'guaranteed' should maybe be thought of as being kind of like a faucet -- to be turned on and then to be turned off. If someone outlives the guaranteed time period, I think they might have to take the original investment -- sounds good -- but I am pretty sure the full amount would be taxed as ordinary income. That could be a chunk of change. Be sure to check on how that would work with the different types of annuities. Just something to be aware of.
7. For those who already have an annuity, they might want to know that there is something in the tax code that can allow an annuity holder to switch companies. It is called a 1035 Exchange -- but I don't know how it works. (I do wonder if those buying annuities have ever had the salesperson voluntarily explain that one.)
8. Most of the items listed above are things I know only a little bit about. I am not a financial advisor. I am just some nice, silver-haired lady on the internet, who is just trying to get you to do your own homework by giving you some things to think about and to understand before you buy an annuity.
9. One thing I do know for sure -- Never buy on the day you are being "sold."
Now then, aren't you glad you asked.
Mrs. Boomer
PS: Embrace your own critical thinking skills -- and enjoy that free steak dinner.