Whether you’re Muslim or not, annuities are a bad idea

We talk with a lot of people who come to us seeking advice about using annuities. We get why annuities can be attractive: they’re usually presented as being low-risk, reliable sources of retirement income. In the not-too-distant past, people had pensions through their employers — monthly income they knew they could count on when they no longer earned a paycheck. As pensions become less common, annuities have become a popular way to replace that income stream. But for most people, they’re a terrible idea. First, let’s look at how annuities work: When someone buys an annuity, a vendor (typically a large insurance company) contracts to pay the purchaser a stream of cash payments for the remainder of their life, usually beginning at retirement. The annuity may be level, may increase at a fixed rate, or may be linked to an inflation index. All of these options are, of course, reflected in the annuity’s initial pricing. Some financial advisors push hard for their clients to purchase annuities. One reason for this may be that annuities pay notoriously high commissions to the advisor who sells them. Even if they tell you they don’t charge a fee for an annuity, they are most