Annuities

Question: Should some of my retirement money be in the form of an annuity? What are the basic types?

Answer: I've been recommending certain types of annuities for 31 years. There are four basic variations:

1. Immediate annuity: This returns an income you can't outlive. Immediate annuities are usually purchased to supplement retirement income, but I never recommend them! You give up your principal for a monthly check, most of which is your own money, and only a tiny portion is taxable interest.

2. Fixed annuity: These annuities are like a CD that grows tax free. I like multiyear
guaranteed annuities for safety, but don't invest more than $100,000 with any one company.

3. Equity-indexed annuity: These annuities have upside potential with no downside risk. Simply stated, you gain by the performance of the index your money is applied to:
DOW, S&P, NASDAQ, etc. My all-time favorite!

4. Variable annuity: This type of annuity pays the broker the highest commission. If you don't care about risking your principal (the death benefit is guaranteed), your annuity is basically a bunch of mutual funds growing tax free. Not for the faint hearted.