Dear Dr. Don,
I’m looking for a source to get educated on an annuity. I know enough about annuities to be dangerous and need more information to make a well-informed decision. Can you help me?
— Patrick Payments
You’re smart to try to learn more upfront. The wrong time to learn more about an annuity contract is after you sign it. Still, this may be more than a do-it-yourself project.
Start learning more on your own, but bring a fee-only financial planner into the picture if you need help making a final decision. The Bankrate Investing Basics feature “Annuities” is a good place to start with your education.
There are differences between variable annuities and fixed annuities. A variable annuity is an investment in a mutual fund-like product bundled with an insurance wrapper. The SEC publication “Variable Annuities: What You Should Know” provides a nice primer on variable annuities.
A fixed annuity doesn’t have the investment choices of a variable annuity. You’re buying a lifetime income stream that pays a fixed rate of interest on your money. While it’s not a primer on the topic, an earlier column of mine — “Classic question: Annuities or bonds?” — is a starting point to learn more about immediate fixed annuities.
For more depth, consult the Immediate Annuity Library at ImmediateAnnuities.com.
Keep in mind that pension plans and Social Security income behave very much like fixed-rate annuities. Your overall financial picture plays a role in whether an annuity investment is right for you.
Read more Dr. Don columns for additional personal finance advice. To ask a question of Dr. Don, go to the “Ask the Experts” page, and select one of these topics: “Financing a home,” “Saving & Investing” or “Money.”