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  1. #1
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    Variable Annuities?

    Does anybody have any thoughts on Variable Annuities? I currently have some money invested in Mutual Funds with NW Mutual but I've got a friend who is trying to persuade me into selling them and buying into a Variable Annuity with another company(Life Investors). My NW mutual guy says that Variable Annuities can be a little shady?



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    Re: Variable Annuities?

    Almost bought an annuity last year through Morgan Stanley. Decided against it and glad I did.



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    Re: Variable Annuities?

    Are they straight mutual funds or are they inside an IRA or old 401(k)?


    Exaggeration is a BILLION times worse than understating.

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    Re: Variable Annuities?

    Also, how old are you?


    Exaggeration is a BILLION times worse than understating.

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    Re: Variable Annuities?

    For 99% of people variable annuities make absolutely no sense. They are incredible for the person selling them though. Interesting article:

    7 sins of variable annuities

    08:47 AM CDT on Tuesday, June 21, 2005
    By SCOTT BURNS / The Dallas Morning News
    The kids are gone. The last tuition bill has been paid. The mortgage is nearly paid off. The kitchen has been remodeled. Now that there are just two of you, you're equipped to cook for the National Guard.
    You're making more money than ever before. You can save more money than ever before.
    What's the catch?
    The taxman thinks you are red meat.
    If you are in this position – and millions of older baby boomers are – you might be tempted to put some of your money in a variable annuity.
    Don't.
    Here are seven reasons why variable annuities don't work for the vast majority of investors.
    1. High expenses: While mutual fund expenses are declining, the insurance industry still thinks you're a patsy for fees. The 8,296 variable annuity sub-accounts launched before Jan. 1, 2000, have an average total expense of 2.14 percent a year, including 1.28 percent for insurance-related expenses. The 19,766 variable annuity sub-accounts launched since then have an average expense of 2.43 percent, including 1.41 percent for insurance-related expenses.




    The expenses come out of your return. If you are hoping to earn 10 percent on your investment, tax-deferred, fees averaging 2.34 percent – 23 percent of your return – are a powerful substitute for the taxman. In fact, taxes are deferred but higher.
    2. High taxes, Part A: In a variable annuity, you gain tax deferral at the expense of higher tax rates later. Withdrawals from variable annuities are taxed at ordinary income rates, which can be as high as 35 percent. If you invested in mutual funds and stocks outside of the variable annuity, you would pay dividend and capital gains taxes at 15 percent.
    3. High taxes, Part B: In a variable annuity, income returns are withdrawn before principal. This means every dollar withdrawn is taxed at ordinary income rates.
    Investments in mutual funds and stocks, on the other hand, allow you to realize principal as well as capital gains. If your investment doubles, for instance, every $1,000 of sale proceeds for a fund or stock will include $500 of nontaxable principal and $500 of capital gains taxable at 15 percent.
    So you'll net $925 in after-tax cash for each $1,000 withdrawn. With the variable annuity, you'd net only $650 to $850 per $1,000 withdrawn until all earnings had been taken, assuming tax rates of 15 to 35 percent.
    4. High taxes, Part C: If you die before spending the accumulated income in your variable annuity, the tax liability will go to your heirs. If you die before spending the accumulated capital gain in a mutual fund or stock, the unrealized capital gain disappears along with the tax liability. Some consider this tax benefit our only incentive to die.
    5. Increased portfolio risk: High fees in variable annuities encourage excess risk. With fees running over 2 percent annually, it makes little sense to invest in a money market fund (gross yields under 3 percent) or a quality bond fund (gross yields 3 to 5 percent).
    6. Lost flexibility: Because of their heavy-duty marketing expenses, variable annuities have punitive redemption fees that apply for as many as 10 years. Variable annuity investors tend to feel "locked-in" as a consequence.
    7. High expenses and prospective returns: The 1980s and '90s were periods of high returns for both stocks and bonds. When 10-year Treasuries were yielding 8 percent, a 2 percent expense burden took "only" 25 percent of the yield.
    Today, when 10-year Treasuries are yielding 4 percent, a 2 percent expense burden takes half the return.
    Equity accounts in variable annuities face a similar problem. While equities were returning 15 percent, a 2 percent expense burden took only 13 percent of the return. If equities return a below-average 8 percent in the future, as some expect, a 2 percent expense burden will take 25 percent of the return.



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    Re: Variable Annuities?

    Until you max out your 401(k) (assuming you are eligible for one) of $15,500 or whatever you can put in tax deferred, you really shouldn't be looking at anything like this, IMHO



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    Re: Variable Annuities?

    If you are within 5-10 years of retirement and have money in old IRA's that you would like to capture a good portion of the upside of the market, along with having guaranteed minimums to protect your money...then, and maybe then, might a VA be the right solution for you.
    If you just have money in mutual funds that you would be putting there, then no, you lose pretty much all flexibility and fees will eat away at your returns.


    Exaggeration is a BILLION times worse than understating.

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    Re: Variable Annuities?

    VA's can be a good tool for the right person. I pesonally will not go into much more advice than that here since I am licensed to sell them.

    I suggest getting info from a couple of different agents from a cpl of different companies NOT from the internet and people who think they know but probably didn't really know the answers to your questions.

    What I would suggest from here is to ask for questions to ask an agent?

    Like what kind of fees?
    Is there a min?
    Anything guaranteed?
    What kind of risk tollarance do you have?


    It also depends on the VA product so many out there and they might not be for you. You can not lump all VA's into one group.



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    Re: Variable Annuities?

    I would not buy an annuity. All the charges associated with an annuity make it a bad choice IMO.


    "where there is pain, let us bring grace. for those afraid, let us be brave. where there is misery, let us bring relief. let us be the remedy" dc*b

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    Re: Variable Annuities?

    I used to work for Ameriprise Financial in the Minneapolis headquarters. They have Riversource Annuities that are actually really good. They are some of the least expensive annuities available. An annuity is not for everyone. You should be within ten years of retirement if you are considering one, because your money will be tied up for about 7 to 10 years. After the ten years though the annuity will allow you to have stable income until you pass away (as long as you only take out about 6-7% per year). If you take out more than that they will not be able to guarantee you life long income. Also, if you are getting a Riversource annuity, look into the ryder (if forget the actual name) that allows you to increase your total investment with the market, but protects you from lossing if the market tanks. It's an excellent insurance policy for a bad economy. Every year they take a snap shot of your account and if you made money then that becomes your "guaranteed" income for life. If the maket tanked that year then your "guaranteed" income is the original amount that was guaranteed prior. I could write more than you would want to hear on this, but if you are seriously interested in an annuity and want to shop around, then call an Ameriprise advisor and they can go over it with you. Or here is the website for the advisors at the headquarters and you can talk to one of them. www.ameriprise.com/fsc I hope this helps. You are already starting off well by asking what is right for you and not just doing something because it is right for someone else or "everyone."



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    Re: Variable Annuities?

    Also, how old are you? I'm 27. I've been contributing to an SEP for 7 years which consists of Mutual Funds and a Roth IRA.

    I've been trying to do some research on some of the pro's and con's but like some of you have stated, there are many different type's of VA's and it gets kind of confusing.

    Thank all of you for your imput!!!



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    Re: Variable Annuities?

    I agree that VA's are not for everyone. But I am a believer that they are a great product for the right person. Let's say you are a 45 year old client that invested in the market in Nov of 07, and tragically passed away in March of 08. The $400K investment would have dropped to around $350k over this timeframe if invested in the market yet the beneficiary would have inherited the whole $400K. If this would have been invested in a MF then the bene would have only received the 350K. Also, we are forgetting that the average A-share mutual fund has an internal fee of about 1.2% and thats after paying an up-front load up to as much as 5%. The VA expense is higher but comes with extra benefits and the client doesn't have to pay the up-front load which really offsets the fee's. Just my 2 cents.



  13. #13
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    Re: Variable Annuities?

    Quote Originally Posted by trueclone2 View Post
    VA's can be a good tool for the right person. I pesonally will not go into much more advice than that here since I am licensed to sell them.

    I suggest getting info from a couple of different agents from a cpl of different companies NOT from the internet and people who think they know but probably didn't really know the answers to your questions.

    What I would suggest from here is to ask for questions to ask an agent?

    Like what kind of fees?
    Is there a min?
    Anything guaranteed?
    What kind of risk tollarance do you have?


    It also depends on the VA product so many out there and they might not be for you. You can not lump all VA's into one group.
    It's a great idea to get info from multiple sources. You must consider who is giving you the information and if they are looking out for your best interests. If you don't want to spend the time and effort yourself to do the research you could hire a fee only financial advisor who doesn't make his/her money from commissions. Don't get me wrong, when an insurance agent or financial advisor sells you a product they deserve to be compensated for that service. Just make sure that product is right for you.

    Also, there's nothing wrong with getting your information from the internet. Just pick a trustworthy source such as Kiplinger's,Money magazine,Smart Money,Business Week,etc. They all say the same thing...variable annuities aren't a good fit for most people.

    Sorry for the rant but a coworker bought(was sold) a VA a couple months ago and was reading the fine print last week. He just realized the huge redemption fees if he needs to get at the money. He had no idea how high the expenses involved are just for owning the product. His fault for not reading what he signed. His "financial advisor's" fault for not explaining the product fully.



  14. #14
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    Re: Variable Annuities?

    These things are an absolute waste of money. If you're worried about supporting your family if you pass, purchase dirt cheap term insurance and pocket the savings in fees and purchase a no load index stock fund. Your savings will grow quicker and you can give both to your family if you die.

    True, there may be some tax benefits for estate planning, but you'll need have a pretty big estate before that will kick in.


    Last edited by Bobber; 05-13-2008 at 12:00 AM.

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    Re: Variable Annuities?

    Quote Originally Posted by Fatsow View Post
    I agree that VA's are not for everyone. But I am a believer that they are a great product for the right person. Let's say you are a 45 year old client that invested in the market in Nov of 07, and tragically passed away in March of 08. The $400K investment would have dropped to around $350k over this timeframe if invested in the market yet the beneficiary would have inherited the whole $400K. If this would have been invested in a MF then the bene would have only received the 350K. Also, we are forgetting that the average A-share mutual fund has an internal fee of about 1.2% and thats after paying an up-front load up to as much as 5%. The VA expense is higher but comes with extra benefits and the client doesn't have to pay the up-front load which really offsets the fee's. Just my 2 cents.
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