No. of Recommendations: 1

I purposely did not mention an annuity. There can be lots of got'cha's with them.

Money coming out is all income until you have taken out all gains, then principle is paid tax-free. That is controlled by the Fed regulations that govern the operations of annuities.

1. Lock-in time: Funds are generally not available for 7 years after the account is opened. There are substantial penalties imposed for early withdrawals. Again governed by the tax laws they are organized under. This differs from the treatment of post-tax contributions to a trad IRA/401k/etc where a portion of the post-tax contributions are paid as a percentage of the funds.

2. Fees: There may be fees to open, fees to manage, fees to re-allocate, fees to close and fees to annuitize it.

3. The 59 1/2 lock: As with other retirement accounts, the funds are not available until you are 59 1/5. As with IRA/401k/etc accounts, certain exceptions are available. If you turn 59 1/2 and are still under the 7 year contract lock, no money.

4. Changes to portfolio: Used to be you were locked into one "selection." I believe, but do not know for sure, that probably no longer applies.

If you go this route, make sure you get all the info you can on fees, funds, management responsibility, limitations on use, etc. Compare a few.

I was talked into an annuity in the mid 90's. It grew some. When I retired in 2005, I wanted to close it and get the money working harder. I was still 4 1/2 years from the 59 1/2 release point. I should have done it and taken the 10% haircut.

From July 2007 through March 2009, it lost 58%, by far my worst investment. When I was finally able to close it, it was still down about 45%.

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