Some annuities can offer a safe haven during tough economic times
One type of investment heavily marketed is annuities, which can provide a guaranteed income after retirement. What the ads don't say is that some annuities can be as risky as buying stocks.
Consumers must decide how much risk they're willing to take, when they want to get their money back, and what features they want. Plus, fees and charges vary widely.
The Basics The first thing an annuity buyer must decide is when to start drawing money. For people close to retirement age, an "immediate" annuity starts paying right away and can last as long as they live. For those not close to retiring a "deferred" annuity can be a savings vehicle.
The next choice: fixed or variable.
Fixed annuities have a guaranteed rate of return, now 2.75 to 5.25 percent, depending on contract length, and can be immediate or deferred.
Variable annuities typically invest in a set of mutual funds the buyer chooses, which means investments are exposed to potential market losses. They too can be immediate or deferred.
And, equity-indexed annuities combine a guarantee on principal with market-based investments. One criticism of these is gains are usually capped. During boom years, that cap might be well below actual returns. "You don't get the full upside of the stock market," said John Wesley, director of after-tax annuities for TIAA-CREF.
But others say the value of that guarantee is clear in bear markets. "Worst case scenario, if you buy a bad indexed annuity, you'll make a little less interest," said Keith Singer, a financial planner in Boca Raton, Fla. "But you're not going to have 40 percent less money in a year."
The costs The problem with annuities is there are multiple layers of expenses, said Morningstar analyst John Coumarianos.
There are annual maintenance fees typically 1.25 to 1.4 percent. Variable annuities also have fees related to the mutual funds they hold. Features and add-ons drive up the fees.
One of the most common features is a death benefit. In its most basic form, it allows you to designate a beneficiary to receive either whatever is left in the account or a guaranteed minimum amount, which will cost more up front. Another cost is the "surrender charge," the amount the insurance company will take if you withdraw cash early.
When researching annuities, be sure to get the details on how much each feature will cost over time.
The tax benefits With annuities your money grows tax free. But a large amount of academic research shows the tax advantages don't translate into substantial savings, said Anthony Webb, a research economist with the Center for Retirement Research at Boston College. He noted that senior citizens, those most likely to be taking annuity payouts, often don't pay taxes, or have low tax burdens.
Eileen AJ Connelly is a syndicated columnist. 
