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There is a purpose, place, and time for annuities and there are not many.

Annuities are a savings, investment, and income instrument that are appropriate for specific needs and particular situations. There is no question that "insured" income can be of great value and of great peace of mind for many; however, annuities are, more often than not, misused, overused and misunderstood.

Be aware of annuity limitations and costs as well as their advantages. Be sure to understand what can go wrong as well as you understand what can go right:

• Annuities represent a means for insurance companies to be in the investment business regardless of the real costs and benefits to the investor.

• Annuities are used far more because of the 7%-10% commission paid than because of investor need.

• An annuity invested within a retirement account is unconscionable.

• Annuities invested late in life, when income distribution is more important than capital accumulation, can be very expensive without understanding the terms, conditions, options, and provisions of the annuity contract. 

• The investment growth performance projections included with an annuity contract are used to sell annuities not to explain annuities. 

But annuities guarantee me future income!

The only question you need to ask yourself when considering an annuity is what price are you willing to pay for future income?

Assume a $100,000.00 starting point and select the accumulation period (the number of years you will let your capital grow) and the distribution period (the starting point and a projected number of years you would like income):

Choose between building and managing your own investment portfolio or buying an annuity:

• Invest about all of your starting capital with total initial commissions of less than $1,000.00 in a high quality investment portfolio. If you use an advisor, the right advisor, annual costs will be less than ½%.

• Buy an annuity starting with about $90,000.00 (remember they take about $10,000.00 in commissions). Let them invest your money in a high quality investment portfolio deducting annual fees management of, I suspect, around 1%-2%.

At the end of the accumulation period, which choice do you think will have the most capital to generate the most income?

But annuities provide for tax-deferred accumulation of capital!

Have you ever thought of holding good investments for a long period of time? That is "tax-deferred accumulation of capital."  

There are few more advantages to investment portfolios over annuities:

• Realized gains are taxed at capital gains rates rather than as ordinary income as is the case with annuity distributions. 

• There is much more investment/income flexibility with an investment portfolio to do what you choose with your capital when you want rather than being limited by a chosen annuity distribution option which may be good or bad depending on what happens to you after you choose the option.