Annuities

There are five different types of annuities, but all boil down to essentially the same thing: An insurance contract that offers guaranteed income, often for life, and sometimes with a shot at capital appreciation. Annuities are meant to supplement income from a traditional stock and bond portfolio, and can be included in a 401k plan. It is not a good idea to invest more than half of your portfolio in an annuity/annuities because an annuity is fundamentally illiquid.

Annuities make the most sense for pre-retirees and retirees who want to minimize worry about bear markets in retirement. Retirees know they will have a specific stream of income no matter how markets perform. Annuities, in short, represent certainty in an uncertain world.