Annuity purchasers are not totally familiar with their varieties. They know only what salesmen suggest. Most are commissioned salesmen and not truly independent advisers.
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. You get fixed amounts, though the dollar’s value is constantly diminished by ongoing inflation.
Then there are variable annuities or equity-indexed annuities. Returns are expected to be higher than that of a standard, fixed annuity. 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. ( See the Earl J Weinreb NewsHole® comments.)
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