Last month the White House decided to get into the business of giving financial advice.  The White House’s “Middle Class Task Force” recommended that Americans, many of whom are in a terrible financial bind, begin investing in immediate annuities. 

With the volatility of the stock market, the crash of the real estate market, and the staggering unemployment numbers, Americans are looking for any way to preserve their investments and set themselves up for a livable future.  The most conservative investments, like certificates of deposit and money-market accounts, are returning almost nothing these days. 

If you’re not familiar with these investment options, let me explain how they work.  You buy an immediate annuity by making a large investment with an insurer.  Then you begin to receive large payouts which last for the rest of your life.  An example in a recent Wall Street Journal article shows how a 65-year old buying a $100,000 immediate annuity would receive roughly $7,500 per year. 

Should everyone immediately invest in immediate annuities?  I think that makes about as much sense as suggesting that everyone should take an aspirin every day, just because for some people, it’s a good way to fend off a second heart attack.  Financial planning is never one size fits all.

Some financial gurus suggest, for example, that the best way to use life insurance as part of your planning is to “buy term and invest the difference.”  And while that’s a great strategy for some, it’s a horrible mistake for others.  In the same way, buying immediate annuities makes great sense for some investors, but is a sure way to a less happy retirement for others.

Today’s interest rates are super low, and as the Wall Street Journal article pointed out, these pension-like investments require you to make a very educated wager that hinges on something most of us know nothing about:  how long we’re going to live.  If you live a long time, an immediate annuity can be a great investment.  But if you don’t, the one who will benefit the most from your investment is the insurance company.

Don’t get me wrong.  As someone whose career has been built around helping people to make the right decisions – about life insurance, disability insurance, college savings plans, and yes, annuities – I’m happy to have the White House advocating that Americans take a look at a variety of financial options they might not have considered in the past.  But rushing into something is almost always a mistake, and it pays to take your time and to seek the advice of competent professionals before making any major financial moves – especially when your family’s future is at stake.