ong>To sell a variable annuity, one has to be securities licensed. This is because when you purchase a variable annuity, you allocate your premiums into investment accounts such as mutual funds and stocks. As you can see, because your money is "invested" instead of saved, your money is at risk. That's right! With a variable annuity you can lose your money, while with the other three basic types of annuities you have guarantees to protect all (fixed) or a majority (fixed index annuities) of your premium and your minimum credited interest.

There are two main reasons I never recommend variable annuity products to my clients. The first is you can lose your money when most of my clients want safer money, not more risky money. The other reason is most variable annuities have high annual costs, so if the markets you invested in are down, you also get to pay the high fees on top of your other losses. Not a pleasant scenario for most people, but one that played out again and again from 2000-2002.

All types of fixed, fixed index and immediate annuities depend on the quality of the insurance company backing the annuity product. This is why most knowledgeable annuity representatives stick with the financially-strong and consistent insurance companies when helping their clients choose an appropriate annuity.

Remember, most liquid assets except cash have premature or removal surrender charges (or just removal or sales charges). This applies to stocks, certificates of depos

In this world of sound bites and corporate scandals, it would be nice to get the straight story about something. So here goes. As a licensed independent life insurance agent, it chaps my hide to listen to all of the terrible things said by the security-licensed people in America about annuities. They typically only talk about the negative aspects or take information out of context when discussing all things annuities.

Do I think annuities are the best thing since sliced bread? Well, it depends. Some things about annuities are great. Some products, like variable annuities, are not the best thing for an individual or family in certain situations or times (or any time in my opinion), but having some safer money is still a good thing for most people in most situations (fixed and fixed index annuities). I studied securities and securities law in graduate business school and worked as an intern with an investment bank, but I have yet to hear a very objective discussion of annuities from any securities-licensed individuals.

Two of the most common practices I observe of securities people on the web and with clients are lumping all annuities together and imparting the worst characteristics of one type of annuity on another type of annuity. These techniques work with well clients who are too trusting and fearful or don't understand the basic definitions of the four common types of annuities. So let's start there.

A fixed annuity is an annuity that pays a fixed rate of return for a period of time. For instance, for a given period say a year, a fixed annuity may pay 6%. After that period is over, interest is credited to the account and a new fixed rate is declared over the next period, in this case over the next year. A fixed annuity has guarantees for a minimum return of principal and a minimum return of interest credited. These guarantees will not make you rich; however, these guarantees do provide peace of mind because you will most likely never have to worry about losing your money. No matter how bad the economy gets for an extended time, the actuaries at the insurance company providing the annuity have calculated the required reserves to meet these guarantees.

The key benefits of fixed annuities are:

• As interest rates (in the economy) increase, you are rewarded with a higher credited interest rate.
• There are guarantees so you won't lose your money.
• You know how much you'll be earning for planning purposes.
• The longer you commit your money, generally the higher interest rate you'll be credited (similarly to certificates of deposit - longer terms, higher crediting rates).
• The credited interest is tax-deferred as long as the money stays in the annuity or another tax-deferred vehicle.
• You don't have to annuitize the annuity to remove your money.
• You earn interest on interest, interest on deferred taxes, and interest on the original premium, so called triple compounding.

The key disadvantages of fixed annuities are:

• Surrender charges for removal of funds before the term of the annuity is mature (just like a certificate of deposit at a bank charges a penalty for early withdrawal).
• There are tax penalties if you spend any of the money before age 59 1/2 like most qualified retirement programs.
• When interest rates (in the economy) go down, generally credited interest rates go down.

Fixed index annuities are similar to fixed annuities, except for a couple of key differences.

First, a fixed index annuity (formerly called an equity indexed annuity) is a type of fixed annuity with the potential to return more credited interest if the index employed does well over the crediting period. This means that your money isn't in the market, so you can't lose your money if the chosen index goes down. You still participate in the upside, but you do not participate in the downside. The basic advantages of fixed index annuities are the same as fixed annuities, only with the additional potential for an upside return compared to the fixed interest rate return of a fixed annuity.

The main disadvantage compared to fixed annuities is that if the index you chose to link to does not perform well, you may not make a lot of money for that period. Of course if you didn't make a lot of money because the index went down, you most likely would have still been much better off than your friends in a mutual fund who probably lost money when you didn't. The other aspect many people don't understand about fixed index annuities is that you never make the market return when the market is up. This is the trade-off for never losing money when the market goes down. Typically fixed index annuities credit about 82% of the market return.? This is analogous to loaning your money to a bank in a certificate of deposit. The bank may make 6.4% on your money, but the bank only credits 4.9% to you, the lender to the bank. Unlike a CD though, you don't pay taxes until you remove money.

Another typical method of securities salespeople is to compare mutual funds with fixed index annuities. Wrong! A fixed index annuity is a savings tool with an insurance company which allows for upside potential of typically/usually 5-8% per year tax-deferred (on average for top quality companies). It should be compared with CDs (certificates of deposit) or government bonds, not mutual funds. No savings instrument will ever match the return on the S&P 500 in an up year. These vehicles are not designed for that. Instead, these fixed and fixed index annuities are designed to never lose money, like bank certificates of deposit.

An immediate annuity is an annuity where you give your money to an insurance company and the company begins paying you immediately, just like the name says. These products are useful for some purposes, but aren't commonly used for a regular income stream because of the generally lower interest crediting rates. A special type of immediate annuity is commonly used for one of the higher net worth strategies we use with some clients.

A variable annuity is a whole different animal than a fixed annuity, a fixed index annuity, or an immediate annuity. To sell a variable annuity, one has to be securities licensed. This is because when you purchase a variable annuity, you allocate your premiums into investment accounts such as mutual funds and stocks. As you can see, because your money is "invested" instead of saved, your money is at risk. That's right! With a variable annuity you can lose your money, while with the other three basic types of annuities you have guarantees to protect all (fixed) or a majority (fixed index annuities) of your premium and your minimum credited interest.

There are two main reasons I never recommend variable annuity products to my clients. The first is you can lose your money when most of my clients want safer money, not more risky money. The other reason is most variable annuities have high annual costs, so if the markets you invested in are down, you also get to pay the high fees on top of your other losses. Not a pleasant scenario for most people, but one that played out again and again from 2000-2002.

All types of fixed, fixed index and immediate annuities depend on the quality of the insurance company backing the annuity product. This is why most knowledgeable annuity representatives stick with the financially-strong and consistent insurance companies when helping their clients choose an appropriate annuity.

Remember, most liquid assets except cash have premature or removal surrender charges (or just removal or sales charges). This applies to stocks, certificates of depos

e, for a given period say a year, a fixed annuity may pay 6%. After that period is over, interest is credited to the account and a new fixed rate is declared over the next period, in this case over the next year. A fixed annuity has guarantees for a minimum return of principal and a minimum return of interest credited. These guarantees will not make you rich; however, these guarantees do provide peace of mind because you will most likely never have to worry about losing your money. No matter how bad the economy gets for an extended time, the actuaries at the insurance company providing the annuity have calculated the required reserves to meet these guarantees.

The key benefits of fixed annuities are:

• As interest rates (in the economy) increase, you are rewarded with a higher credited interest rate.
• There are guarantees so you won't lose your money.
• You know how much you'll be earning for planning purposes.
• The longer you commit your money, generally the higher interest rate you'll be credited (similarly to certificates of deposit - longer terms, higher crediting rates).
• The credited interest is tax-deferred as long as the money stays in the annuity or another tax-deferred vehicle.
• You don't have to annuitize the annuity to remove your money.
• You earn interest on interest, interest on deferred taxes, and interest on the original premium, so called triple compounding.

The key disadvantages of fixed annuities are:

• Surrender charges for removal of funds before the term of the annuity is mature (just like a certificate of deposit at a bank charges a penalty for early withdrawal).
• There are tax penalties if you spend any of the money before age 59 1/2 like most qualified retirement programs.
• When interest rates (in the economy) go down, generally credited interest rates go down.

Fixed index annuities are similar to fixed annuities, except for a couple of key differences.

First, a fixed index annuity (formerly called an equity indexed annuity) is a type of fixed annuity with the potential to return more credited interest if the index employed does well over the crediting period. This means that your money isn't in the market, so you can't lose your money if the chosen index goes down. You still participate in the upside, but you do not participate in the downside. The basic advantages of fixed index annuities are the same as fixed annuities, only with the additional potential for an upside return compared to the fixed interest rate return of a fixed annuity.

The main disadvantage compared to fixed annuities is that if the index you chose to link to does not perform well, you may not make a lot of money for that period. Of course if you didn't make a lot of money because the index went down, you most likely would have still been much better off than your friends in a mutual fund who probably lost money when you didn't. The other aspect many people don't understand about fixed index annuities is that you never make the market return when the market is up. This is the trade-off for never losing money when the market goes down. Typically fixed index annuities credit about 82% of the market return.? This is analogous to loaning your money to a bank in a certificate of deposit. The bank may make 6.4% on your money, but the bank only credits 4.9% to you, the lender to the bank. Unlike a CD though, you don't pay taxes until you remove money.

Another typical method of securities salespeople is to compare mutual funds with fixed index annuities. Wrong! A fixed index annuity is a savings tool with an insurance company which allows for upside potential of typically/usually 5-8% per year tax-deferred (on average for top quality companies). It should be compared with CDs (certificates of deposit) or government bonds, not mutual funds. No savings instrument will ever match the return on the S&P 500 in an up year. These vehicles are not designed for that. Instead, these fixed and fixed index annuities are designed to never lose money, like bank certificates of deposit.

An immediate annuity is an annuity where you give your money to an insurance company and the company begins paying you immediately, just like the name says. These products are useful for some purposes, but aren't commonly used for a regular income stream because of the generally lower interest crediting rates. A special type of immediate annuity is commonly used for one of the higher net worth strategies we use with some clients.

A variable annuity is a whole different animal than a fixed annuity, a fixed index annuity, or an immediate annuity. To sell a variable annuity, one has to be securities licensed. This is because when you purchase a variable annuity, you allocate your premiums into investment accounts such as mutual funds and stocks. As you can see, because your money is "invested" instead of saved, your money is at risk. That's right! With a variable annuity you can lose your money, while with the other three basic types of annuities you have guarantees to protect all (fixed) or a majority (fixed index annuities) of your premium and your minimum credited interest.

There are two main reasons I never recommend variable annuity products to my clients. The first is you can lose your money when most of my clients want safer money, not more risky money. The other reason is most variable annuities have high annual costs, so if the markets you invested in are down, you also get to pay the high fees on top of your other losses. Not a pleasant scenario for most people, but one that played out again and again from 2000-2002.

All types of fixed, fixed index and immediate annuities depend on the quality of the insurance company backing the annuity product. This is why most knowledgeable annuity representatives stick with the financially-strong and consistent insurance companies when helping their clients choose an appropriate annuity.

Remember, most liquid assets except cash have premature or removal surrender charges (or just removal or sales charges). This applies to stocks, certificates of depos

charges a penalty for early withdrawal).

There are tax penalties if you spend any of the money before age 59 1/2 like most qualified retirement programs.

When interest rates (in the economy) go down, generally credited interest rates go down.

Fixed index annuities are similar to fixed annuities, except for a couple of key differences.

First, a fixed index annuity (formerly called an equity indexed annuity) is a type of fixed annuity with the potential to return more credited interest if the index employed does well over the crediting period. This means that your money isn't in the market, so you can't lose your money if the chosen index goes down. You still participate in the upside, but you do not participate in the downside. The basic advantages of fixed index annuities are the same as fixed annuities, only with the additional potential for an upside return compared to the fixed interest rate return of a fixed annuity.

The main disadvantage compared to fixed annuities is that if the index you chose to link to does not perform well, you may not make a lot of money for that period. Of course if you didn't make a lot of money because the index went down, you most likely would have still been much better off than your friends in a mutual fund who probably lost money when you didn't. The other aspect many people don't understand about fixed index annuities is that you never make the market return when the market is up. This is the trade-off for never losing money when the market goes down. Typically fixed index annuities credit about 82% of the market return.? This is analogous to loaning your money to a bank in a certificate of deposit. The bank may make 6.4% on your money, but the bank only credits 4.9% to you, the lender to the bank. Unlike a CD though, you don't pay taxes until you remove money.

Another typical method of securities salespeople is to compare mutual funds with fixed index annuities. Wrong! A fixed index annuity is a savings tool with an insurance company which allows for upside potential of typically/usually 5-8% per year tax-deferred (on average for top quality companies). It should be compared with CDs (certificates of deposit) or government bonds, not mutual funds. No savings instrument will ever match the return on the S&P 500 in an up year. These vehicles are not designed for that. Instead, these fixed and fixed index annuities are designed to never lose money, like bank certificates of deposit.

An immediate annuity is an annuity where you give your money to an insurance company and the company begins paying you immediately, just like the name says. These products are useful for some purposes, but aren't commonly used for a regular income stream because of the generally lower interest crediting rates. A special type of immediate annuity is commonly used for one of the higher net worth strategies we use with some clients.

A variable annuity is a whole different animal than a fixed annuity, a fixed index annuity, or an immediate annuity. To sell a variable annuity, one has to be securities licensed. This is because when you purchase a variable annuity, you allocate your premiums into investment accounts such as mutual funds and stocks. As you can see, because your money is "invested" instead of saved, your money is at risk. That's right! With a variable annuity you can lose your money, while with the other three basic types of annuities you have guarantees to protect all (fixed) or a majority (fixed index annuities) of your premium and your minimum credited interest.

There are two main reasons I never recommend variable annuity products to my clients. The first is you can lose your money when most of my clients want safer money, not more risky money. The other reason is most variable annuities have high annual costs, so if the markets you invested in are down, you also get to pay the high fees on top of your other losses. Not a pleasant scenario for most people, but one that played out again and again from 2000-2002.

All types of fixed, fixed index and immediate annuities depend on the quality of the insurance company backing the annuity product. This is why most knowledgeable annuity representatives stick with the financially-strong and consistent insurance companies when helping their clients choose an appropriate annuity.

Remember, most liquid assets except cash have premature or removal surrender charges (or just removal or sales charges). This applies to stocks, certificates of depos

rket goes down. Typically fixed index annuities credit about 82% of the market return.? This is analogous to loaning your money to a bank in a certificate of deposit. The bank may make 6.4% on your money, but the bank only credits 4.9% to you, the lender to the bank. Unlike a CD though, you don't pay taxes until you remove money.

Another typical method of securities salespeople is to compare mutual funds with fixed index annuities. Wrong! A fixed index annuity is a savings tool with an insurance company which allows for upside potential of typically/usually 5-8% per year tax-deferred (on average for top quality companies). It should be compared with CDs (certificates of deposit) or government bonds, not mutual funds. No savings instrument will ever match the return on the S&P 500 in an up year. These vehicles are not designed for that. Instead, these fixed and fixed index annuities are designed to never lose money, like bank certificates of deposit.

An immediate annuity is an annuity where you give your money to an insurance company and the company begins paying you immediately, just like the name says. These products are useful for some purposes, but aren't commonly used for a regular income stream because of the generally lower interest crediting rates. A special type of immediate annuity is commonly used for one of the higher net worth strategies we use with some clients.

A variable annuity is a whole different animal than a fixed annuity, a fixed index annuity, or an immediate annuity. To sell a variable annuity, one has to be securities licensed. This is because when you purchase a variable annuity, you allocate your premiums into investment accounts such as mutual funds and stocks. As you can see, because your money is "invested" instead of saved, your money is at risk. That's right! With a variable annuity you can lose your money, while with the other three basic types of annuities you have guarantees to protect all (fixed) or a majority (fixed index annuities) of your premium and your minimum credited interest.

There are two main reasons I never recommend variable annuity products to my clients. The first is you can lose your money when most of my clients want safer money, not more risky money. The other reason is most variable annuities have high annual costs, so if the markets you invested in are down, you also get to pay the high fees on top of your other losses. Not a pleasant scenario for most people, but one that played out again and again from 2000-2002.

All types of fixed, fixed index and immediate annuities depend on the quality of the insurance company backing the annuity product. This is why most knowledgeable annuity representatives stick with the financially-strong and consistent insurance companies when helping their clients choose an appropriate annuity.

Remember, most liquid assets except cash have premature or removal surrender charges (or just removal or sales charges). This applies to stocks, certificates of depos

ong>To sell a variable annuity, one has to be securities licensed. This is because when you purchase a variable annuity, you allocate your premiums into investment accounts such as mutual funds and stocks. As you can see, because your money is "invested" instead of saved, your money is at risk. That's right! With a variable annuity you can lose your money, while with the other three basic types of annuities you have guarantees to protect all (fixed) or a majority (fixed index annuities) of your premium and your minimum credited interest.

There are two main reasons I never recommend variable annuity products to my clients. The first is you can lose your money when most of my clients want safer money, not more risky money. The other reason is most variable annuities have high annual costs, so if the markets you invested in are down, you also get to pay the high fees on top of your other losses. Not a pleasant scenario for most people, but one that played out again and again from 2000-2002.

All types of fixed, fixed index and immediate annuities depend on the quality of the insurance company backing the annuity product. This is why most knowledgeable annuity representatives stick with the financially-strong and consistent insurance companies when helping their clients choose an appropriate annuity.

Remember, most liquid assets except cash have premature or removal surrender charges (or just removal or sales charges). This applies to stocks, certificates of deposit, annuities, mutual funds, etc. Don't get hung up on surrender charges. Instead, find a financial advisor who has your needs at heart and works with the top companies. This advisor will match your needs to the term of the fixed or fixed index annuity you select together. Just like certificates of deposit, generally the longer you allow your money to be tied-up, the higher the typical average return (if your advisor places your money in a solid product from one of the top companies). If you have a longer time horizon, a longer surrender charge time frame is not the worst thing because of the higher average interested credited tax-deferred verses the shorter surrender charge terms with generally lower average yields. The point is to plan your access around when you hit 59 ? years old or other age when you know you'll need the money. Remember, these are savings vehicles, not mutual funds. The top companies are rock solid and have some of the most innovative products and (flexible) crediting methods.

You also will need to know more about some basic financial planning concepts, but that's for another article. Additionally, there are annuities that have bonuses (sometimes good, sometimes bad), annuities with tuition credit for your children or grandchildren, and annuities that can be used to help a charity, your kids' education, and your retirement all at the same time. These will all be covered in future articles. And before some cockamamie securities guy goes off, yes, usually the yield on bonus annuities is lower after the initial bonus is awarded than other annuities. But for the top quality companies, many of the average 5 or 10 year yields are in line with the other, non-bonus annuities of a similar term/surrender charge schedule. Yield is not always the most important feature of a financial vehicle or instrument. Sometimes other features and lower risk are more important than the yield. Try telling that to a stock broker sometime!

Don't let securities people scare you away from safer money strategies by jumbling everything annuity together and using the disadvantages of one type of product (like a risky investment in a high cost variable annuity) to be superimposed on all annuity products. If they're not honest with you from the beginning, it's doubtful they'll be honest with you over the long haul! If you want to learn more about safer money strategies where all of your money is not at risk in the market, you'll need to talk to a licensed safer money strategies expert, not your typical stock, bond, or mutual fund broker. If they were trying to help you make your money safer, you wouldn't have lost so much from 2000-2002.

? This observation was calculated by Jack Marrion, producer of the Advantage Compendium. Visit Jack's website at http://www.indexannuity.org/.