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Comparing annuities and mutual funds

Posted On Wed, October 28, 2009

There are a number of things consumers should consider when comparing investing in annuities versus looking into mutual funds.

In a recent post for a Dallas Morning News financial blog, Jimmy Perryman, a certified public accountant, fielded a question from a reader wondering how to compare tax-deferred annuities with mutual funds. Perryman advised that a consumer should keep the holding period in mind when comparing the options.

For example, if the mutual fund is not in a tax-deferred account, then the consumers should lessen it by the annual tax liability. If the mutual fund is in an individual retirement account, comparisons with annuities should keep in focus the fact that annuities will require the payment of certain charges, such as administrative costs.

"Please also consider that annuities may offer other benefits that mutual funds don't, such as a death benefit, a lifetime income, or a guaranteed return of principal," Perryman wrote.

The Insurance Information Institute notes that people who are considering annuities should keep in mind that different annuities come with separate risks. Some annuities may be more risky than others because they rely on the performance of stocks.
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