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(MoneyWatch) Should you consider buying an annuity? You’ll hear lots of passionate opinions on both sides of this debate, each with valid points. Let’s cut through some of the confusion to help you decide if an annuity might be a good investment for you.First, understand that there are good annuities and bad annuities, just like any other product or service that you might buy.
When I hear someone say they’d never buy another annuity because of the poor performance or high fees they experienced with the annuity they had purchased, I have the same reaction I’d have if I heard someone say they’d never buy a car because they had a bad experience with a lemon they’d previously owned.
Second, it’s important that you distinguish between deferred variable annuities and immediate annuities. These products are as different as a Hummer is from a Prius. Would you decide to never purchase a Prius because you experienced bad gas mileage and expensive repairs with your Hummer? Of course not.
Deferred variable annuities are used to accumulate savings for retirement on a tax-advantaged basis, and they often come with high fees and poor performance. In my opinion, the best deferred variable annuities — meaning low cost and good performance — are offered by mutual fund companies such as Vanguard or Fidelity. You initiate the purchase of this type of products by contacting these institutions.
If a broker or advisor is trying to sell you a deferred variable annuity, chances are good these products will come with high commissions and fees that drain your savings. This leads me to an important recommendation: Go shopping, and don’t be sold!