Financial Literacy

Before you put money into a fixed annuity, be sure you've educated yourself with regard to the limitations and restrictions that will impact your investment.

Insurance company: Be sure that the company issuing the annuity has a solid financial underpinning, i.e., it will be able to meet its obligations. You want to be sure the company will stand behind your investment over the long term. (Fixed annuities do not carry FDIC insurance, but are guaranteed by the issuing company). All guarantees are based on the claims paying ability of the insurance company. Check the ratings of insurers from services such as AM Best, Moody's, Standard & Poor's, Duff & Phelps, and Weiss Research.

Surrender charge: If you withdraw money from a deferred annuity within a certain period after purchase, the insurer may impose a "surrender" charge. This fee, which is a percentage of your investment, usually decreases each year until it disappears (typically after six to eight years).

Other fees: There may also be fees for special features that the issuer offers. However, since they are already accounted for in the interest rate you will receive, comparing interest rates on products that include these features will, in effect, allow you to compare fees.

Also, keep in mind that subject to certain exceptions, including death, you will be assessed a 10% penalty for withdrawal of earnings prior to age 59½. Remember, annuities are meant to be long-term investments.