Just what is an Annuity?

Q. Can you explain - in layman's terms please - what an annuity is?

I have heard it described as the best possible investment and also as a scam. Thank you

An annuity is a contract that provides for a series of regular payments over a period of time.

Unfortunately, from here things can get much more complicated. There are five key factors in to be considered in establishing an annuity:

1. the method of purchase (examples: single premium, periodic premiums)
2. the timing of payments (examples: begin immediately, deferred)
3. the number of lives covered (examples: single, joint)
4. the payment guarantee features (examples: guaranteed payments for 10 years)
5. the nature of the supporting investment (example: fixed annuity, variable annuities)

In my opinion, they suffer from two problems.

First, after taking into account all of the factors listed above, they often become difficult to understand. This is compounded by the fact that it is often hard to obtain detailed information on investment performance and fees.

Second, they have received a bad reputation because of a few advisors that have not used them properly.