Stay away from any kind of annuity, especially one from a financial
planer.. He gets a commission and the company gets a large percent
of your investment with strict terms on early outs. You become trapped
into an annuity.
Best you do your on investing with a plan of your own on how you
would like to withdraw your money on retirement.
These are often mis-sold to the wrong people for the wrong reasons, and often are mis-represented by sales people who want to make commissions. They can be quite complicated and difficult to understand how they really work. There is a 10% penalty for withdrawal before 59-1/2, so they are not for younger people. There are expenses, very complicated methods of capping returns, and you do not get dividends, so your return will be limited. You won’t lose money but you won’t make much because of the capping methods. Your returns will be more bond like at maybe 4%-5%. Also, your gains will be taxed at ordinary income rates, not at lower capital gains rates. So they are not that great an investement unless you are older and really super faint-hearted about investing. In that case, one may be right for you. Just don’t expect much out of these.
Steve2 is right on the money! These tend to be convoluted insurance products disguised as investments. There are typically three moving parts: Cap rate, the most you can get in any one year, Participation rate, the % of the market’s gain your account will be credited, and spread/fees. The insurance company, in their sales literature, usually guarantees two of these, but has the option to change the third, at their sole discretion, with no recourse offered to the investor. Moreover, if this is a “bonus” product, it may be what’s called a two-tiered product, meaning, you can never walk away with a lump sum. You’re forced to annuitize at some future date.
Here’s are some of the things I’d want to know:
1. What’s the surrender charge and for how long?
2. What’s guaranteed and what can the insurance company change.., and by how much?
3. At what point can I walk away with a lump sum?
4. How is the rate calculated and credited to your account each year?
5. Is the surrender charge waived at death?
6. And, if income is important, how much can I withdraw each year without a surrender charge?
I’ve found that most annuity products that pay more than 6% commission to the agent are not great for the consumer, especially when they offer a bonus % to the investor in the first year. It’s smoke and mirrors. I’d ask, but that’s me.
I’m sure you’ll make the right decision once you get all the facts. I suspect there are some decent, easy-to-understand, straight-forward equity-indexed annuities out there. I just haven’t seen one yet. Of course, that’s my opinion.
Hope that answers your question and earns your Best Answer vote!
DISCLAIMER: While the information in this response was obtained from sources believed to be reliable, its accuracy and completeness cannot be guaranteed. The opinion voiced in this answer is for general information only and it shall not be construed as tax, legal, or investment advice for any individual. Questioners are urged to consult with their professional advisers before making any decisions regarding their finances.
Retirement Guru, CFP®, EA, BCE, CFS, AAMS
Certified Financial Planner™ Practitioner
Enrolled Agent | Admitted to Practice before the IRS
‘Providing sound Retirement and Estate Planning Strategies since 1985′
Source(s):
One of only 1,691 professionals in the country who holds both the CFP and EA designations (CFP Board: July 2009). In practice over 26 years
Stay away from any kind of annuity, especially one from a financial
planer.. He gets a commission and the company gets a large percent
of your investment with strict terms on early outs. You become trapped
into an annuity.
Best you do your on investing with a plan of your own on how you
would like to withdraw your money on retirement.
These are often mis-sold to the wrong people for the wrong reasons, and often are mis-represented by sales people who want to make commissions. They can be quite complicated and difficult to understand how they really work. There is a 10% penalty for withdrawal before 59-1/2, so they are not for younger people. There are expenses, very complicated methods of capping returns, and you do not get dividends, so your return will be limited. You won’t lose money but you won’t make much because of the capping methods. Your returns will be more bond like at maybe 4%-5%. Also, your gains will be taxed at ordinary income rates, not at lower capital gains rates. So they are not that great an investement unless you are older and really super faint-hearted about investing. In that case, one may be right for you. Just don’t expect much out of these.
Steve2 is right on the money! These tend to be convoluted insurance products disguised as investments. There are typically three moving parts: Cap rate, the most you can get in any one year, Participation rate, the % of the market’s gain your account will be credited, and spread/fees. The insurance company, in their sales literature, usually guarantees two of these, but has the option to change the third, at their sole discretion, with no recourse offered to the investor. Moreover, if this is a “bonus” product, it may be what’s called a two-tiered product, meaning, you can never walk away with a lump sum. You’re forced to annuitize at some future date.
Here’s are some of the things I’d want to know:
1. What’s the surrender charge and for how long?
2. What’s guaranteed and what can the insurance company change.., and by how much?
3. At what point can I walk away with a lump sum?
4. How is the rate calculated and credited to your account each year?
5. Is the surrender charge waived at death?
6. And, if income is important, how much can I withdraw each year without a surrender charge?
I’ve found that most annuity products that pay more than 6% commission to the agent are not great for the consumer, especially when they offer a bonus % to the investor in the first year. It’s smoke and mirrors. I’d ask, but that’s me.
I’m sure you’ll make the right decision once you get all the facts. I suspect there are some decent, easy-to-understand, straight-forward equity-indexed annuities out there. I just haven’t seen one yet. Of course, that’s my opinion.
Hope that answers your question and earns your Best Answer vote!
DISCLAIMER: While the information in this response was obtained from sources believed to be reliable, its accuracy and completeness cannot be guaranteed. The opinion voiced in this answer is for general information only and it shall not be construed as tax, legal, or investment advice for any individual. Questioners are urged to consult with their professional advisers before making any decisions regarding their finances.
Retirement Guru, CFP®, EA, BCE, CFS, AAMS
Certified Financial Planner™ Practitioner
Enrolled Agent | Admitted to Practice before the IRS
‘Providing sound Retirement and Estate Planning Strategies since 1985′
Source(s):
One of only 1,691 professionals in the country who holds both the CFP and EA designations (CFP Board: July 2009). In practice over 26 years