The Obama administration is urging the purchase of annuities to make sure that people—typically retirees—don’t outlive their retirement savings.
Annuities provide payments for specific terms—say, 10 years, or for life—in exchange for cash upfront or payments, but they can be complex investments because of the way that some are set up. A variable annuity, for example, requires that you consider such factors as investment risk, fees, expenses, bonus credits, guaranteed minimum income benefit and long-term-care insurance. And annuities are expensive: Commissions typically range from 5 percent to 9 percent. If the investor dies before the annuity runs out, the principle could be lost. (If you pay extra, you can transfer an annuity to a surviving spouse.)
On the bright side, annuities can be a comfort to investors, because they provide retirement income, says Howard Yasgur of Baird. He advises you to speak with an investment adviser before you purchase.