Annuity Pros and Cons

For example, Vanguard's basic annuity will run you around 0.67%. So on a $100,000 investment, you'd pay $670 per year -- a $1,680 savings vs. the $2,350 annual cost of the average annuity, notes Nestor. Schwab's expense ratio hovers around 0.95%.

But aside from the high fees, the reason these things get such a bad rap is because they're often sold to the elderly who are enthused by the notion of a constant payment stream. But unfortunately, many don't fully understand the fee structure and get burned if they need to withdraw the money from the account too soon.

"So while the ability to let your money grow tax-deferred is appealing, there are long-term concerns about the fees and expenses and level of tax inefficiency," says Bill Fleming, director of personal financial services at PricewaterhouseCoopers in Hartford, Conn.

And one more bummer. A variable annuity is "the worst thing for your heirs to inherit because there's no step-up in basis," says Nestor. That means, for tax purposes, your heirs will owe ordinary income tax on the account's value from the day you opened the annuity. So if you bought a fund for $100 and it's worth $1,000 at your death, they'll owe tax on the growth, or the $900. With a regular mutual fund, your heirs will get the "step-up in basis" and won't owe a dime. Instead, they'll have a $1,000 investment in their portfolio.

So Don't Get Taken

Put on your investigative hat on and dig through the fine print. This stuff is hard to crack (heck, it was hard for me to get people to admit to the fees). Talk with a trustworthy financial advisor who is not commission-based. And try not to buy an annuity from an insurance company (I'm certain to get emails about this) because their fees are often outrageous. In addition, those guys work on commission and they could make upward of 5% on the sale of a variable annuity. So it's no surprise they push them.

Granted, if you're going to stay young forever you'll need your money to stick around too. But make sure you're spending it on personal training sessions and anti-aging vitamins.

Not those ridiculous annuity fees.