Varying The Risk
Variable annuities promise some minimum level of annual return, typically in the neighborhood of 5% or 6% of your investment, even if the investments you select perform poorly.
If the investments perform well, you can either cash in those gains or get a higher level of guaranteed income.
If the issuer permits it, investing 100% of this money in stocks is a rational strategy. You can aim for high returns with a safety net in case the market goes against you.
NOTE: Some variable annuities have extremely high fees, so you should shop for a relatively low-fee selection, such as that offered by TIAA-CREF or VANGUARD. In any case, you never want to pay a fee any higher than 1% for a variable annuity.
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If the investments perform well, you can either cash in those gains or get a higher level of guaranteed income.
If the issuer permits it, investing 100% of this money in stocks is a rational strategy. You can aim for high returns with a safety net in case the market goes against you.
NOTE: Some variable annuities have extremely high fees, so you should shop for a relatively low-fee selection, such as that offered by TIAA-CREF or VANGUARD. In any case, you never want to pay a fee any higher than 1% for a variable annuity.
* * * * *
posted by Bob Moser at
8:17 PM
3 Comments:
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By
erik, at 12:45 AM
Variables Annuities are evil.
Most have high fees of 1.5% to 3%. Then on top of that they only provide high expense funds with 1.5% to 3% management fees.
Out of pocket each year you are out 3% to 6%. In a retirement portfolio, the fees alone what would be the ideal perpetual withdraw rate.
They often offer a guaranteed rate of return of 5% to 6%. If you read the 200 page prospectus, this guaranteed rate of return is applied to a theoretical balance.
If you want the theoretical balance they will not write you a check for that amount, rather they will annuitize the theoretical balance and make you take it over 8 years at a sub market rate interest.
Seniors love this guaranteed rate gimmick.
Low cost annuities like Vanguard do not offer this gimmickry. Seniors do not see the guaranteed rate, and are no longer interested in the annuity. Thus the entire benefit of the annuity was not the annuity, but rather the gimmicky guaranteed rate.
No insurance sale person got rich selling CDs.
Annuities are sold, rarely every bought.
By
erik, at 12:47 AM
Good points Erik, and I hasten to add that I posted this topic NOT to encourage anyone to consider an annuity as an investment option but rather, to point out some of the many "traps" that are part of the typical annuity contract.
By
Bob Moser, at 7:42 PM
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