No other savings vehicle is as misunderstood, under appreciated and maligned as fixed annuities.
Most people who can benefit from annuities have been bombarded by misinformation, biased opinions and outright lies.
The truth is: fixed annuities are safe because they are guaranteed by insurance companies, a great place to keep retirement money because they pay tax-deferred competitive returns, and all of your money is working 100% of the time.
Like all investments, fixed annuities are sometimes not suitable nor should anyone have all their retirement money in fixed annuities.
Sometimes those providing information about fixed annuities have hidden agendas, biased opinions and/or little knowledge.
Many personal financial columnists for newspapers and magazines fall into this category: their opinion is tainted by their brokerage background, the agenda is to get you to put your money in market investments that compete with annuities, and their limited knowledge was supplied by the brokerage industry.
Why is the brokerage industry biased? Because they offer investments that compete with fixed annuities! In their mind an "annuity purchased" is a "brokerage commission lost".
Unfortunately, the biases of many columnists and brokers may be unknown even to them.
Notwithstanding all the misconceptions about fixed annuities, it is important that you always understand your investments and confirm they are suitable for you.
The best way to get fixed annuities "right" is to work with a financial advisor you like, trust and whose best interest is your best interest.
Below are the ten biggest misconceptions of fixed annuities and a short rebuttal of why they are not true.

1. Come with huge surrender penalties: like all contracts, penalties are assessed for breaking the rules, otherwise there are no penalties.
   
2. All charge high fees: like bank CDs, annuity fees are built-in and not taken from the principal amount you put into an annuity or the interest you earn.
   
3. Are extremely hard to understand: no more so than any investment or savings option, in fact, annuities are far easier to understand than most investments.
   
4. Money is tied up for a long period of time: you have access to your money at all times and without penalties if you abide by the annuity contract.
   
5. Nothing is left for my family if I die: not only is this not true, your money bypasses probate without delay if you've named a beneficiary.
   
6. Different types of annuities are confusing: there are only four main types of annuities compared to thousands of mutual funds.
   
7. Not good for older folks: they are especially good for seniors because they are safe, tax-deferred and convertible to a guaranteed lifetime income.
   
8. They are not safe: rock-solid safe with never a penny of principal lost due to the guarantee by the same insurance companies protecting our other assets.
   
9. Agents are paid huge commissions to sell: agent commissions are paid by the insurance company, not taken from the principal or earnings.
   
10. Annuities are a substitute for life insurance: annuities are great for retirement savings but not good for wealth transfer like life insurance.
    

The next time you hear a scary story about fixed annuities, consider the source to determine if it is biased, misinformed or just plain lying.
If you put your money in an annuity, make sure you understand how it works and is suitable for you.
Like all savings and investment places, fixed annuities work great if used for their intended purpose: annuities are intended for risk adverse, safety conscious, retirement-minded savers who are satisfied with a competitive rate of return.
Shelby J.
Smith, Ph.
D.
December 2009