Any investment choice depends on many factors including your personal circumstances, your age, the amount of risk you feel comfortable taking, the amount of time you have before you need the money, and your other assets, investments and financial realities.

When you are young, it’s typically better to take advantage of other types of retirement savings programs such as 401(k) plans at your job and IRAs—which have more tax benefits—before you consider investing in annuities.  If you end up needing the money you have invested in an annuity before you reach age 59 1/2 you will probably have to pay some penalties for early withdrawals.

As retirement gets closer, annuities might seem more attractive because they offer the option to “annuitize” or convert your savings into regular income, which you will most likely need or want when you stop working.  You will need to decide if the benefits of an annuity outweigh their risks and fees.

There are some people who may find annuities attractive, including:

1. Working people who are already making maximum contributions to their 401(k), IRA or other qualified tax-advantaged retirement plans but still have surplus cash they want to devote to saving for retirement.  Because annuity premiums are not tax-deductible, it’s usually better to take full advantage of these other options first.
2. People who are confident they will not need access to their money for a long time or until they are ready to change their savings to regular income, usually at retirement age.  Many annuity contracts impose heavy penalties of for withdrawals taken in the early years of the contract, and an additional 10% tax penalty applies to withdrawals taken before age 59 1/2.
3. People at or near retirement age that have a lump sum of money they want to, or need to, convert to predictable income over a period of years.  An annuity can make this process easier because an insurance company does all the calculations to determine how much income you can regularly receive while still having enough money to last in the annuity for as long as you need it.  The insurance company also usually guarantees the income for the term of the contract.