Are annuities a good way to preserve my principle while getting a decent return?

Oldman answered 8 months ago …

ReadytoRetire's answer is really good, if you already understand how annuities are structured. One can purchase a fixed annuity = constant monthly payments for your life, or for joint and survivor, or for certain definite periods (if you die before the payments would stop, say after 5 years but before 10 years from the time the payments begin, then a beneficiary will get the remainder either in payments as you did or in a discounted lump-sum). One can add all sorts of bells and whistles, e.g., a guarantee of a remainder payment if you die sooner than the insurance company's calculation of the "avg. lifespan".

There's a site on the web;

http//:www.immediateannuities.com.

which will allow you to a- play around with the need for a monthly income, or an initial payment or what would be the monthly decrease in payments for the variety of options.

Next, we get to "variable annuities" which are designed to make lots of fees for the producers and salespeople. I detest them.

In a tax-sheltered account: You could just purchase some laddered C.D.'s (5 yr term and a portion of the remainder of the first discounted 10K could be put into a world or US stock index...No big fees, no surrender charges if you want to terminate the investment schema early...variable and fixed annuities may offer high "Tease" rates, but there are surrender charges that decrease from 7 % to zero over 7 years from the first step of the investment...and you are unlikely to beat a CD/stock index fund's returns...and you can purchase this in an IRA. One year, in the IRA you could start with a purchase of a 5-yr CD, the next with a purchase of a "TIP" ETF (Treasury-Inflation-Protected bonds that garuantee your bond will be redeemed for a minimum of face---or inflation-adjusted value).

The next thing about any annuiies, is that the older you are when payment begins, the higher the payout (they don't expect you to live > avg.)

The next thing about annuiies, is that they're only as secure as the Insurance company's funding of the separate accounts, to cover the projected (contractual) income stream. Most annuities are only federally insured to a certain maximum, which I believe is $100K in principal, but it might be more.

By the way, Social Security payments are the best annuity one can get, because they're partially indexed for inflation...and the payments don't decrease due to deflation.

Finally, if you do purchase an annuity and after a few years it looks to be a bummer...you can do a Section 1035 (Tax-Exempt) exchange, but you'll still get hit with some fees and surrender charges.