This advice may startle you:
Get a Training-Wheels Annuity Now

"Joe, if you're such a tough critic of annuities, why advise everyone to go out and get a 'Starter' annuity? Isn't that just building sales for the insurance industry?"

"It makes good sense for learning annuities and keeps your starter mistakes small. Buy a mutual fund when you are 22, sell a covered call option when you are 25, and start small with annuities when you are 50, to learn how those investments work.

At any age, try $10,000 or $20,000 in a plain vanilla CD-like annuity if interest rates are high. Be aware that if the annuity term ends before you are 59-1/2 years old, you'll likely need to roll it over to another annuity to avoid a 10% IRS penalty.

If rates are low, and you are near 55, maybe a market-growth annuity. Please read about the Takeaway Surprise and pitfalls first.

If you are 60 or older, a lifetime income product can be useful. And at 55 to 60, deferred income annuities, while not my favorite, can teach you a lot. But again, read my warnings about taxes and rates.

Start small. Learn as you go.

Excerpts from
Your Annuity Game Plan

Introduction

This is a book about self-defense. Financial self-defense. It's also about improving your retirement safely.

Annuities are promises from an insurance company to pay you money. They exist to lower your risk when you invest and want reliable income. Some well-regarded economists have concluded that income annuities give retirees more income with less risk.

When choosing and relying on annuities, protect yourself at all times. Don’t fall prey. Defend yourself against poor advice, confusing products, and atrocious industry practices. Of which there are plenty.

The Amazing Knowledge Gap: Retirement Planning

Whether you are a high-school dropout or a Stanford MBA, you probably share the same level of training on retirement finances, which is little to NONE.

In an era when few still have pensions, this astounding knowledge gap is dangerous. It often has tragic consequences. Retirement planning is a sort of mystical art, perhaps because it is really complicated. Some of that complexity is thanks to the annuity industry, and some is unnecessary.

What's Not to Trust?

When billion-dollar insurance companies make their products and contracts ridiculously complicated, slip unhelpful features and surprise costs into what you buy, and “bury” vital information, it’s probably not to help you. If they can’t get agents to sell their product to you without paying them a commission of 7% to 9%, of course you ask: What’s wrong with that product?

Always Seek Simplicity

Benefit or Anti-Benefit? Marquee or Side-Show?

Complex annuities with a lot going on usually (a) are inefficient (b) cost you more for features than they are worth, and (c) are almost impossible to compare apples-to-apples with competing annuities. Simpler products are usually better for you.

News flash: there are dozens or hundreds of competing products available, for whatever they show you. If you don't compare, you lose.

Marquee benefits define why an annuity exists: lifetime income, market-growth, tax deferral, or guaranteed steady interest. Transfer of risk from you to the insurance company is also presumed to be an underlying marquee benefit. Side-Show benefits, like a "bonus" that actually costs you, can be worse than irrelevant. They can increase your taxes and give you nothing in return. They can be anti-benefits.

The annuity industry sometimes uses minor benefits to sell you. They do this by treating something that really is Side-Show, i.e. contrived sizzle, as if it belongs on the Marquee. You know car salesmen use the sizzle (“check out that high-tech dashboard!”) to sell the steak. WIth annuities, too much emphasis on sizzle can mean the important benefits are weak, or there's an unmentioned risk.

Your Annuity Game Plan

This advice may startle you: Get a Training-Wheels Annuity Now

Excerpts from Your Annuity Game Plan