How to Choose the Right Annuity for You

A new generation of annuities are simpler and cheaper.

A new generation of annuities from Vanguard Group and Fidelity Investments are simpler and cheaper than most deferred variable annuities, and you can buy both products directly without having to pay a commission to a broker. For younger retirees, these annuities may be a better choice than an immediate annuity -- even if the initial payout is a bit lower -- because you can benefit from future stock market increases rather than locking in a fixed payment for life based on today's low interest rates. Also, unlike an immediate annuity, with these plans you can reclaim your money if you change your mind, sometimes without a penalty.

If you don't expect to start tapping the income within five years, you may be better off choosing a product with higher expenses to get a withdrawal benefit that is guaranteed to grow over time. If you don't like the idea of paying high annual fees but you want to guarantee a stream of income in the future, consider a deferred fixed annuity that doesn't rely on market performance. It ties payouts to your age at time of purchase, amount invested and years before you begin withdrawals.

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Mary Beth Franklin
Former Senior Editor, Kiplinger's Personal Finance