The majority who buy annuities are not totally familiar with them and their varieties. They know only what the sales people suggest. Despite the fact they call themselves “advisers” they are, after all, commissioned salesmen and not truly independent advisers.
To start with, buyers of such policies should know the varieties that are available. That begins with the conventional annuity guarantees; a fixed amount of income that returns both a return of principal as well as interest. Those “high returns” can be misleading.
Also, there is no hedge against inflation in a conventional annuity contract. You get fixed amounts, though the dollar’s value is constantly diminished.
Then there is the availability of a variable annuity or an equity-indexed annuity. Its returns are expected to be higher than that of a standard policy. The return is variable because it’s tied to the Standard & Poor’s 500 Stock Index. (Other methods may be used and can be controversial.)
Downsides of annuities that many investors overlook include steep early surrender costs and charges for insurance that buyers may not need.
Therefore, buying annuities may not be what the salesmen promises.
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