For a select few (read as for not that many people), annuities can make some sense. For example, if you need an immediate annuity to help cover your basic living expenses and you are not comfortable with managing your own money, then (maybe) an immediate annuity should be considered. However, you will pay dearly for this consideration and perceived need.

Unfortunately (for investors), immediate annuities are not the only annuities being pushed at “free” dinners. With “free” dinners, investors usually see the more complex variety of annuities rolled out, e.g., variable and indexed annuities. Make no mistake, the folks putting on these “free” dinners are looking to sell something to you - something (read as variable and indexed annuities) they may not even fully understand themselves. It should go without being said that one should never purchase (nor sell) that which they do not understand.

And unfortunately, some of these variable and indexed annuity insurance policies can carry large sales incentives for the person “storyselling” you their product. Sometimes a commission or fee of 5% to 6% of the contract price. So if you purchase a quarter-million dollar ($250,000) variable annuity contract from a salesman, that salesman may stand to walk away with $15,000 of your money as soon as he cashes your check. That’s a pretty hefty fee for doing very little work. These kind of salesman incentives draw into question whose best interest is being served in these transactions. As such, my suggestion is, leave your checkbook at home.

That being said, here are some pros and cons of annuities:

Pros:

• A near guaranteed future income stream

• Permits additional savings for high-income earners

• Certain annuities can protect against loss of principal (but you will pay a hefty fee/charge for this protection)

Cons:

• Annual Fees of 1.25% of your total assets

• Surrender charges that can equal 10% of your assets if you cancel the annuity within the first 7-10 years of the contract

• High fees and commissions

• Insurance account riders that can be 1% to 1.5% of your account value each year

• Limited Investment options with high expense ratios

If you are thinking about an annuity, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients. Please note, Intelligent Investing does not sell annuities or any products, nor do we receive commissions for the sale of any products. We only provide unbiased fiduciary level service to our clients.

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