Forner warns that lack of flexibility and liquidity are the two main reasons you might think twice before tying up a large sum of money in an annuity. Once you mail that check, you're pretty much stuck with that investment, unless you want to pay a surrender charge to get your money back. Also, if you withdraw money from an annuity before you are age 59½, you may have to pay a 10 percent tax penalty to the Internal Revenue Service, along with any taxes you owe on the income.
That's why you need to choose carefully and find a product that matches your long-term objectives.
"If you're looking for a long-term solution that provides guaranteed income for life, an annuity can be very valuable," said Forner. "But you're going to have to make some type of a time commitment."
Also, you need to do your homework on the companies providing the annuities in order to protect your money, which is not insured by the FDIC and can be lost if the insurer goes bankrupt. "You need to align yourself with a carrier that will fulfill their promise to you," he added. "It's imperative to do your due diligence on the financial strength of the carrier you're dealing with."