I’m newly retired and trying to decide just how to invest my limited (but all-I-have) assets so they don’t get pounded in a future economic downturn. I responded to some mail propaganda from an insurance company about annuities, and their salesperson called on me. He left me very confused (although he certainly made definite recommendations about what I should buy). Now I’m trying to do a little research. Can you do anything to help me put the annuity puzzle together?

As a trained journalist, I joke sometimes that I can over-simplify and garble any subject. Certainly I’m not a financial expert, but I did take your too-big-to-answer-in-one-little-article question to an estate/financial planning professional I know who specializes in senior issues.

Mel Hudson, of Mid-America Estate Services, is a chartered financial consultant (CHFC) as well as a chartered life underwriter (CLU) with more than 40 years of experience. He does not represent an individual insurance or stock brokerage, but rather works with a broad variety of companies to provide recommendations tailored to meet an individual client’s best interests.

First, he explained the one thing I did already know: An annuity is an investment instrument sold by an insurance company. It is as good as the company that sells it and the details of the contract. Although not insured by the federal government (FDIC) as are bank certificates of deposit and savings accounts, annuities are insured by state insurance funds for up to $100,000 per person, per company. So there is a real element of safety.

Second, annuities come in many styles and types, but basically there are two categories:

• Immediate, designed to provide an income stream immediately (or within a month). This type of annuity is appropriate for the older, old (whatever that is), or people who are nearing the end of life and want to increase their income. It is also a good option for someone who needs to buy long-term care insurance, but doesn’t want to pay for it out of current income. The biggest mistake Hudson sees is someone buying a large immediate annuity too soon in the planning process.
• Deferred, designed to accumulate over a specific period of time. In this way the annuity is much like an investment in the stock market (without the risk to the principal and with a greater interest return than bank savings).
• Split (combination), often the best plan is a combination of these two types of annuity (doesn’t even have to be with the same company) so the investor is provided both with immediate income (or long-term care insurance) as well as future accumulation.
• Third, annuities can be “fixed” or “variable,” depending on how the interest is calculated.

Hudson also gave this advice: Look for an insurance agent as carefully as you’d look for a doctor or a lawyer (or a good mechanic). Check out the potential agent and his or her company with the Kansas Insurance Department. Also, check out the company with the A.M. Best Co., and don’t do business with one whose rating is below class A (excellent).