How To Decode Annuities

Do your eyes glaze over when you heard the word annuity? When you imagine handing over a large chunk of money to an insurance company in exchange for promised income, do those glazed eyes turn into a death stare?

No doubt, annuities usually don’t generate a lot of excitement. They can be shrouded in jargon, and when you look under the hood, you’re confronted with a complicated collection of moving parts. Making shopping more difficult are all the choices to be made: Do you need income now? Do you need income later? Do you need lifetime income, or income for a certain number of years? No wonder so many potential buyers simply walk away.

But don’t automatically turn your back. In some situations, the right product could be a good fit for a financial plan, particularly for those who don’t have a pension. Having a stream of guaranteed income from an annuity might provide peace of mind that essential expenses will be covered if you live well into your eighties or nineties.

If you’re mulling an annuity purchase, this beginner’s guide will cut through the jargon and look at common options you’ll come across. “One of the fundamental challenges is that annuities come in so many different flavors and types,” says Matt Sadowsky, director of retirement and annuities at TD Ameritrade.

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