Negative About Annuities?

Q. I read that great article in the New York Times Sunday by Roger Lowenstien about Pensions. He seems to come to different conclusions from you. Roger seems very strong about buying an annuity. You seem very negative about annuities.

I am retiring with a 401k and deferred comp and the idea of locking in lifetime income sounds good. I have looked at a few annuities already but I am reluctant after reading your stuff. What am i missing?

A. I haven't read his article, but there are four basic types of annuities--fixed, equity-indexed, variable and immediate.

It is not that I am against all annuities. I am absolutely against equity-indexed annuities and can't think of a single situation in which they should be used.

I am strongly opposed to variable annuities because I know that they are recommended for their commission, not the supposed benefits. There's no reason to use a variable annuity for IRA money. Some say you should because of the death benefits, lifetime income or these 'new' GMIB's. I don't. Virutally no one used a VA for the lifetime income. Hardly anyone will ever own one long enough to use the other benefits and you've given up performance to high fees along the way.

Traditional fixed annuities can be a decent replacement for things like CDs as long as the rate is locked in for the entire time there are surrender charges.

The annuities that most journalists (like Jonathan Clements of The Wall Street Journal) typically talk about for retirees are immediate annuities. An immediate annuity is like a pension replacement and can be a good investment in certain situations.

Keep in mind that you should never put all of your eggs in one basket. Beware of anyone suggesting you do so.

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