Hylland Capital
The next generation in financial planning

Ask an Advisor Archive

Your Personal Finance Questions - Answered!

“Should I buy an annuity?”

For the next couple of episodes, we are going to look at a few products that notorious salesmen and women in the industry hawk to the masses, and help you determine if it is really the best option for you.

Today’s questions is:

“Should I buy an annuity?”


Transcript - Is an Annuity Right for me?

Annuities are typically sold to older savers, but don’t be surprised to be approached by an annuity salesmen regardless of your age.

Most simply, annuities are insurance contracts. You give a company a lot of money, and they promise a future stream of income in return.

In principal, annuities make a lot of sense. Who doesn’t like predictable future cash flows?

The problem with annuities is that they are often loaded with very high fees, lock up your money for extended periods of time, and offer lower long term returns than you can typically get in a diversified stock and bond investment portfolio.

For fees, it is not unusual to pay 2 or 3 percent per year in fees for an annuity. This is incredibly high has even the most expense mutual funds charge 1 percent, while many of the investments we use at Hylland Capital charge less than 1 10th of 1 percent.

As far as locking up your money. In retirement, is often nice to have flexibility to spend your money when you choose. You might take a long vacation one year that requires a little extra money, or need money for a medical expense. Locking up your money in an annuity can lead to large charges for breaking the contract.

As far as returns, annuities get creative with their marketing and their stated returns. You will typically see a figure that is called the payout rate. This is how much money you will get each year. But, it is not the same thing as yield like you are used to seeing on bank CDs or bonds.

An annuity’s payout rate also includes a portion of your principal returned to you. So if you invest $100,000 in an annuity that has a payout rate of $7,000, it is not the same as a CD that yields 7%.


Because we are so tired of seeing people sold crappy annuities, we do  free annuity reviews. If you are being sold something, run it by us free of charge and we’ll help explain what you are signing up for. If you would be interested in getting help with an annuity or other investment options, reach out to us at www.hyllandcapital.com/ask

Matt Hylland