The truth about annuities
It happens all of the time. You see an ad for a free lunch held at a nice restaurant. And while you’re there, enjoying your perfectly prepared steak, you can talk about the economy and investment markets. Sounds innocent enough, right?
Nine times out of 10, they are there to sell you an annuity. It might be the right thing for you. Or you might want to back away slowly — and start running.
WHAT IS AN ANNUITY?
Annuities have earned a somewhat seedy reputation throughout their history. They’ve been abused for years by dishonest stockbrokers, insurance agents and bank representatives without regard to client suitability.
An annuity is similar to either a mutual fund or a CD combined with a retirement plan. It also has life insurance attached to it. It’s both an investment security and an insurance product. They’re complex. Many times you can talk to a stockbroker, advisor or insurance agent and THEY are confused! That’s because there are hundreds of different companies offering them and they ALL have various policy details.
Being the fair guy that I am, I’ve listed both four pros and four cons of these often-confusing products. REMEMBER: read the fine print of an annuity, especially regarding the different fees.
DRAWBACKS TO THESE HYBRID INVESTMENTS
(1) They have high annual fees and multiple layers of fees.
(2) You must wait until age 59 ½ before withdrawing all of your money or face penalties and fees.
(3) Unscrupulous brokers, agents and bank reps try to sell unsuitable annuities.
(4) They have high surrender (exit) penalties.
WHY YOU MIGHT CONSIDER AN ANNUITY
(1) You can create lifetime, pension-like income without the government or working for a large company.
(2) Your assets grow tax-deferred.
(3) Annuities are insured and have various guarantees.
(4) They can grow with the stock market and economy.
* * *
Here are some examples of people that should and shouldn’t consider annuities.
WHO THIS COULD BE WRONG FOR
• Someone with no other assets to fall back on
• Someone who doesn’t understand the various fees
• The majority of people who are in low tax brackets
• Investors who haven’t maxed out their retirement plans
WHO THIS COULD BE RIGHT FOR
• High income households that want to defer more investment gains
• High tax-bracket households that benefit most from tax deferral
• People who have maxed out their retirement plans
• Business owners and individuals who are trying to create their own pension-like income
As you can see, a lot of us fall into the category of avoiding this product. Most people are in lower tax brackets or haven’t contributed the maximum to retirement plans.
Proceed with caution and order a free copy of my latest report, The Truth about Annuities.