Question: I'm 42 years old (still working, of course) and have had a fixed index annuity that's worth $25,000. The people I have it with offered me an income rider that (according to them) will earn me an additional 8% per year on top of what I make from the annuity itself. I've read good and bad things on line about the riders. Any advice? ): Duncan, Ypsilanti, MI

Answer: I wonder about this? What kind of investment could guarantee an 8% return above what you're earning on the annuity? For instance, the stock market measured by the S&P 500 sports a 9.9% average annual return since 1926. But the return over the past decade is 2.64%. The past 4 years is -1.05%. And these figures don't include all the fees and charges imposed by financial services firms. So where is the 8% coming from?

My guess is that the offer promises that you could earn up to an additional 8% on your money.

But what price will you pay in terms of fees over the years for that promise? Remember, the cost of fees compound with time. And if the stock market does jump by 25.95%--as it did over the past year--your gain is limited to 8%. That hurts. Would you do better simply investing in a low-cost broad-based equity index fund?

By the way, "riders" is industry jargon for optional features or benefits you can buy for your annuity. Not all riders are bad, either. For example, you can purchase riders that offer more tailored benefits to a surviving partner and riders that offer a hedge against inflation. But the trend is toward riders that focus on the investment side of the business, most marketed with the idea of earning higher returns with less risk. Problem is, many of the riders that are investment oriented tend to be expensive to own and difficult to understand.

Do you get the sense that I'm wary? My advice is to make sure the cost of the rider is well worth the benefit to you. If you have any doubts about the product I would put your savings to work elsewhere.

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