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What is an annuity? In their primary role, annuities are meant to provide guaranteed, monthly retirement income for as long as you live. They act similarly to Social Security benefits in that they are funded with dollars, but first deposited as a lump sum of money with an insurance company. Secondly, they can serve as an accumulation vehicle with most offering some sort of downside risk protection.

In general, this is all positive, however, critics will warn of high fees and poor liquidity that can be of concern too. This damaged reputation stems from a collection of “bad apple” annuities that once existed in the industry, but are now largely gone. The good news is, a plethora of consumer-friendly annuities are available today, but it requires knowing what your financial needs are to pinpoint the most suitable option for you.

Remain curious to reach a conclusion: Ultimately, your stance on annuities or any other money vehicle should stem from self-interest. If an annuity is recommended to you, ask your financial professional questions until you can soundly determine if this is a good fit for your portfolio. These can include: What is the term of the annuity? What are the liquidity provisions? What is the surrender charge? And, by what method does it credit interest?

Proceed with caution: Every financial vehicle is born with pros and cons, regardless of the type of tool. Above all, you should approach your choices with a healthy level of skepticism, and be sure to ask appropriate questions to determine if it is the best solution for your unique situation.