Q: What is your opinion of annuities as retirement income producer? I had an appointment with another representative recently, but left unsure if this is a good move at this time. I am 64 and retired. I have $257,000 in tax deferred accounts and would like to generate additional income with these funds.
A: Annuities, in general, are complex and expensive products. There are many different types in the market place and it can get rather confusing. As a rule of thumb, you sacrifice the flexibility and control over a fixed sum of money in return for a pre-determined periodic payment at a future date. They are essentially life insurance products with an investment component so the insurance company has figured out, based on life expectancy tables, how much income to offer based on the sum of money and life expectancy of the annuitant (or customer).
To summarize our view, we’re not huge fans of them. They tend to be over-utilized and over-sold because of the distribution method. To say they’re “all bad” is short sighted, however, they need to be carefully utilized in specific situations and not as a sole component of retirement.