What are the pros and cons of a variable annuity?
My parents recently retired a fixed sum of money (considerable, but not huge) and has recommended a variable annuity through a financial adviser. I've heard annuities are generally a bad investment because they have high rates, but with a return guaranteed to them desirable. What are some pros and cons to a variable annuity in this particular situation?
Pros: 1. Usually gets Broker 5% commission on sales. 2. "Growth" is tax deferred until withdrawn. Taxed at ordinary income levels in retirement. 10% IRS penalty if retires at 59 1 / 2. Cons: 1. Insurance against default of the company. They are all in deep CA CA right now (AIG, AXA, AZ, HIG, ING, MET, etc.).. I avoid them. 2. Long time 8-10 years ago the final charge. Pay a penalty if you withdraw money or move it elsewhere. 3. There are no guarantees in return on investment, except the fixed account not keep up with inflation. The "guaranteed return," as a "GIC – Guaranteed Investment Contract" is only guaranteed by the full faith and credit of the insurance company – not guaranteed by any government agency. Warranty is void if the company fails. If you say there are "fine, a strong company, how long they have been in the business, its credit rating, etc, run! Look at your stock price! The only cooperative I know insurance is not solid publicly traded – USAA. (Member of restriction). https: / / www.usaa.com/inet/ent_utils/McStaticPages?key=become_member_main 4. BS annual "contract rate" of change insurance companies in addition to the fees charged by funds from the annuity. 5. If your F / A is less than 15 years exp, or ESP with 5 years exp, find someone else. 6. If your F / A only sell or sell primary insurance products, working for a bank or insurance company, RUN! They have no training, advanced licenses, or experience necessary to understand the markets. I've been saying since 1995 that banks and companies insurance money mangers are poor. Now we all know this. I prefer to put money into a Roth IRA if the money we have is a 401 (k) or the current qualified retirement plan. Was looking at the short-term FDIC insured (under 1 year, months 3-6 pref roll them) CDs or Treasury Securities protected from inflation (TIPS). http://www.treasurydirect.gov/indiv/products/prod_tips_glance.htm was sure the license since 1995, "retired" from it now.
Investment Terms & Facts : What Is a Retirement Annuity Account?
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