An annuity is a contract with an insurance company that provides for a series of payments to be received at regular intervals, usually monthly, for a stated period of time. Like all investments, annuities have advantages and disadvantages. One of the advantages of annuities is that they can be structured to make payments for the life of an annuity owner or an owner and his/her spouse. Another is that annuities are a tax-deferred investment, which postpones the payment of taxes on annuity earnings until withdrawals are made. A third advantage is that some research studies have shown that investing a portion of one's retirement portfolio in annuities and choosing the life payment option helps to avoid the dreaded problem of outliving one's assets.
A disadvantage of annuities is that many of them have high fees, expenses, and surrender charges which reduce an investor's return. Certain types of annuities (e.g., equity indexed annuities) are also very complex and difficult for investors to understand.
You are wise to consider your age in the decision to buy an annuity because it often takes years for annuities to overcome the "drag" of their expenses and pull ahead of alternative investments such as a low-expense index fund in a taxable account. Look for annuities sold by insurance companies with high ratings for financial stability and relatively low expenses.
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