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Deferred Annuities

  "Insurance companies add trivial insurance benefits, disadvantageous tax
   treatment and exorbitant costs to mutual funds and sell them as variable annuities."

Craig McCann, PhD and Dengpan Luo, PhD¹

By definition, an Annuity is not an investment, it is a "stream of payments" better known as current income. A Deferred Annuity is a contract with a life insurance company that allows you to accumulate assets inside the tax deferred "wrapper" before the date you choose to exchange those assets for income. Once you exchange the accumulated assets for an income stream, you no longer own the assets, only the right to collect the income.

Deferred Annuities may have a place in some investment portfolios, but have to be considered carefully in view of their usually heavy layer of costs. As life insurance contracts, all annuities, even so-called "low cost" annuities, bear some mortality and administrative expense that is not strictly investment related. In addition, the vast majority of annuities entail sizeable sales and distribution costs. Because of their relatively large cost burden, annuities often do not stack up well against other tax advantaged investment alternatives.

For a brief but thorough discussion of variable annuities, you cannot do better than the presentation on the Securities & Exchange Commission's (SEC) site.

 The net result of equity-indexed annuities’ complex formulas and hidden costs is that
 they survive as the most confiscatory investments sold to retail investors.¹

¹ (C)2006 Securities Litigation and Consulting Group, Inc., 3998 Fair Ridge Drive, Suite 250, Fairfax, VA 22033. www.slcg.com
The article from which this quote was lifted may be accessed by clicking here.