| As I pointed out in my last column, variable annuities are among the highest-commission products in the investment universe. They are not FDIC-insured. Withdrawals prior to age 59 1/2 are subject to an IRS penalty. Early withdrawals carry a surrender penalty of up to 10%. And your eventual gains - if you have any - are taxed at your income tax rate rather than the lower capital gains rate. Immediate fixed annuities are different, however. Here's how they work... You hand over a lump sum to an insurer. It then pays you a fixed income every month for as long as you live. That payment is pegged to the amount you contribute, your age and gender, and interest rates at the time of purchase. A visit to Charles Schwab's annuity calculator shows that a man who put $100,000 into an immediate fixed annuity today at age 65 would receive monthly payments that would amount to $7,236 a year until he died. (For obvious reasons, the payout is more if you're older and less if you're younger.) A quick calculation reveals that the payout is equal to a 7.23% yield. How is this possible when bond yields aren't nearly this high? Because neither the investor nor his heirs will ever see the principal again. If you die early, the insurance company wins. If you live a long time, you win. That makes immediate fixed annuities a particularly smart choice for retirees who are nonsmokers, moderate drinkers (or teetotalers), not obese and in reasonably good health. Understand, however, that you are giving up control of the money and - due to inflation - your payments will lose purchasing power over time. Another important consideration: Any insurance guarantee is only as strong as the company that makes it. If you're investing a substantial sum, it makes sense to spread it around among top insurers. Yes, there are state industry-backed guaranty associations acting as a backstop, but they have limits. In a major crisis, they may not cover your insurer's insolvency. (To find your state's limit, go here.) Immediate fixed annuities are a one-decision investment. If you decide to plunk for one, the only thing left for you to do is maintain the healthiest possible lifestyle. Here's the bottom line... An immediate fixed annuity offers you safety of principal, guaranteed income for life and protection against declining interest rates. There are no account management or maintenance charges. So, for investors who are afraid of running out of money before they die, they are a worthwhile option. You are exchanging a lump sum for regular, guaranteed monthly income. It's like a do-it-yourself pension plan. One that allows you to manage the risk of potentially outliving your assets - and enjoy the wealth you've spent a lifetime accumulating. Good investing, Alex | 
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