Considering an annuity?

Read BEFORE you sign…

Variable annuities are complex investment products, often described as mutual funds wrapped in an insurance policy. Under a variable annuity contract, an insurance company agrees to make periodic payments to you, beginning either immediately or at some future date. You purchase a variable annuity contract by making either a single purchase payment or a series of purchase payments. Variable annuities are a favorite product of advisors seeking to maximize their incomes as they often pay commission of 3, 4, 5, or even 10 percent! That‘s right, for every $100,000 you invest, your broker may make $3,000 to $10,000… all for filling out a few forms!

Problem #1: Outrageous fees

In addition to high commissions, variable annuities have high costs compared to many other investments. These expenses essentially guarantee you won‘t achieve a reasonable long-term rate of return. It‘s like you have a ball and chain!

Here’s a typical expense structure:

Mortality and Expense Charge 1.50%

Sub Account Management Fees 1.00%

Unreported trading costs 0.78%

Annual Administrative Expenses 0.15%

TOTAL EXPENSES 3.43%

Problem #2: Long surrender periods

This means your money is tied up! If you want to sell your annuity, you will pay dearly. For example look at a typical surrender schedule on a 7 year annuity (far right): www.jayperoni.com, ©2010, All Rights Reserved 10 Mistakes that Could Jeopardize Your Financial Future 2010 Edition 18

This means on a $100,000 investment you may have to pay $2,000 to $8,000 or more to sell your annuity. Talk about inflexible! Yes, most annuities do allow you to withdraw up to 10% per year without penalties, however, you can never completely cash out until the surrender period expires. In the investment world seven years is a long time and things change rapidly. Being stuck in an expensive annuity is not a place you want to remain in limbo.

Problem # 3: Complexity

For most investors, variable annuities are quite complex investments. Between knowing what a subaccount is, how living and/or death benefits work, surrender schedules and fees, withdrawal options, on and on. Variable annuities are so complex that many advisors who sell them truly don‘t fully understand what they‘re selling.

JAY’S SOLUTION: My advice would be to avoid annuities like the plague. There are far better investment choices in this world that are cheaper, more flexible, and provide more attractive returns.

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Posted in Finances by jay 1 Comment