How do annuities work?

This article from CNN Money highlights the great problem facing life annuity or annuity buyers today.

If this was a straightforward life annuity you would know what you have; you would have paid the life annuity company X dollars and would be receiving Y dollars per month. The deal is settled and you don’t care if the stock market goes up or down.

But when it comes to an annuity or annuities which are not really annuities but in fact are investments,you are talking about a whole different ball of wax.

And as investments they are tied to the performance of the stock market,the CD market or both.And to add two final complications,you can have different guarantee periods in the same contract along with large transfer fees.

You ask, how can I figure this out? The answer is that you can’t. There are so many differing future scenarios that it is impossible to know what the result will be.The only fact you can rely on is that if you try to move your money,the fees will be large.So don’t confuse these investments with life annuities where your income is guaranteed, no matter what happens.

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Posted by: Phil Barker: Phil is a leading expert in life annuities in Canada. His website Life Annuities.com is a recognized authority on annuities. Recently, he's been redefining how annuities are sold in Canada.