Annuities for long-term retirement?

Quincy follows Dave on Facebook, and he asks about the value of annuities for long-term retirement. In his answer, Dave explains why he's not a big fan of annuities.

QUESTION: Quincy is on Facebook, and he asks Dave if annuities are good for long-term retirement. Dave gives him the short answer, and then follows up with a more detailed explanation.

ANSWER: No. There’s a rare exception when I might use a variable annuity, which is a mutual fund inside of an annuity, but I don’t use annuities. And I certainly don’t use fixed annuities for anything. They’re crap. That’s basically a CD with huge, huge set of fees on it. No, I’d stay completely away from that. It’s just an insurance agent’s product.

But the variable annuities, there’s a place for those if you’ve got everything else maxed out and your house is paid off. If you want to start talking about some of those, they’ve got some benefits to them. But to use it as a retirement planning vehicle? No, you need to have maxed out everything else and have your house paid off before you even talk about that.

If you’ve gotten there, you can begin to talk to your advisor about some of the benefits of a variable annuity. You can leave a beneficiary on that, so it passes outside of probate, you’ve got some principle guarantees and some return guarantees that are decent. You got some things like that you can learn there. The returns are a little lower, because you’re hit with both the annuity fee and the mutual fund fee. Your net of fee return is lower, but you’re getting these other benefits of the product line if it’s a high-quality, variable-type annuity.

But I wouldn’t even look at that until you’ve got all the other stuff done. So, by and large the answer is no for most people, because most people don’t have their house paid off and aren’t maxing out all other retirement options. If you’re doing all that, and you want to do something in this area, then I might talk about it.