What are the disadvantages of buying annuities vs investing in a no load mutual fund?

Question

I am 58 and my husband is 53 . After raising our 3 kids we have about 25K saved. We thought of buying a single payment annuity so that we can receive payments for life. We do not know how much a month we will get and whether it would be better just invest in a no load mutual fund like Fidelity Retirement fund Which approach will serve our purpose better We have no other retirement except social security in a few years( I plan to take social security at 62 but I might have to work until 66 . My husband plans to take his at 62.

Answer 1

Every investment guru I've ever read or seen on TV has said never buy an annuity. You will be paying a heafty commission to the person who sells it to you. It is best to buy no-load mutual funds. I went to Chas. Schwab.and bought no-load funds.They don't charge me for buying them. They charge the company for acting as the conduit for selling and holding the funds. It is best to buy a diversified portfolio of different funds. They have a wonderful and helpful website and their customer service is great. I can give you the number to call. It is 1- 800-435-4000.Hope this is helpful. GoodLuck

Answer 2

There are large disadvantages for both of your options, actually. C shares, or no-load mutual funds, sound like a deal, but the annual expenses are often very high. If you plan to keep your money in mutual funds for several years, it's better to invest in A shares and pay the sales charge up front. You'll end up with more money in the long run. The only reason you might buy an annuity would be for the death benefit. That's a high water mark where the annuity is paid to you at the highest amount it was worth for the year prior to a death of an owner. You can take income from an annuity, but you can do the same from a mutual fund account without paying the additional amount in yearly annuity expenses. You don't see these fees, but they're there.

Answer 3

First of all, before you decide what investment product is better, you need to decide EXACTLY what you and your husband expect from a retirement investment. And not just about your rate of return. Other factors are the overall stability of the investment, how long you can count on it, how important flexible payout options are to you, et al. I would write down a list that make up your perfect investment vehicle and then rank them, along with specific dollar amounts you think you will need as you get a little less young.

Second, the first answerer is right: fees are the primary drawback of annuities. However, no-load annuities do exist. I know Janus is one company that is offering direct sale of some of their annuity products. However, talking with (more than one!) agent is a good idea if only to get a better understanding of your investment options.

Check out MostChoice.com. It’s a clearinghouse for annuity-related information. They have online articles, a shopper’s guide, what to ask before buying an annuity, and can deliver online interest rate estimates from over 100 A+ rated companies. You can also schedule offline annuity consultations with annuity agents. There is never any obligation to buy anything from anyone! Just have your questions ready and wait until an agent delivers a plan that makes the most sense to you. I would also contact a financial advisor and run the plans you are considering in front of them.

You can find the site here:
http://www.mostchoice.com/annuity.cfm

Hope this helps,
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Answer 4

It depends on how long you think you and your husband are going to live. If you're looking to live more than 20 more years, you may want to look into a lifetime annuity. Just make sure the annuity company you buy it from has low annual expenses (less than 1.5%).
Fidelity is a decent company, and mutual funds may also accomplish what you need. I've heard if you can only take 4% of your balance a year, theoretically, you can never outlive your income.
Don't take your social security early though. Your payments will be reduced by 25% for life. If you live a long time, that may be a very costly mistake.

Answer 5

If you are asking about an immediate annuity, you can get an estimate through an annuity calculator website (such as the one I included in the link). The calculations are based on such things as your payment amount, your age, what state you live in, and possibly your health (if you have a history of bad health, then your contract can be underwritten to account for that. The worst health you are in, the larger your monthly payout should be as your life expectancy would be shorter), and interest rates (it's better to purchase one when interest rates are higher). The disadvantage of an immediate annuity is not keeping up with inflation. Advantages include no fluctuations as in a mutual fund, plus payments for life so you can't outlive the payments.

Answer 6

Primarily the fees that you will be paying before you see your return. No Load mutual fund means that the fees are low, and are mandated to be below a certain percentage. Annuities as a group do not have this limitation, so you quite possibly will have many more fees attached. There are many studies that show that the two surest ways to reduce returns are through increasing fees.

Answer 7

I suggest you to avoid annuities like the plague.

Top 5 Answerer in this category.

Answer 8

perhaps you can get your answer at this:

http://www.bernanke.cn/what-is-a-mutual-fund.html

good Luck!