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Guarding Your Wealth for Senior Citizens
Are Variable Annuity Guaranteed Living Benefits
Worth It?
 ‘Financial
services industry is great at selling the sizzle and delivering very
little steak!’
By Jeffrey D. Voudrie, CFP
Dec. 6, 2007 - If you have an IRA, sorting through
all the investment options can be very confusing. Unfortunately, there
is a lot of hype out there and - in my opinion - the financial services
industry is great at selling the sizzle and delivering very little
steak!
This is especially true in the area of annuities.
Folks purchase variable annuities based on the belief that the principal
was protected and other guarantees. Often there is a wide gulf between
what the investor thinks a product does and what it really ends up
doing.
These are complex financial instruments that are
sold using generalities. As with anything, the devil is in the details,
and the more you know the details the less important some of these
guarantees become.
Take a look at a principal guarantee on a variable
annuity. The ones that I'm familiar with guarantee that you can withdraw
so much a year for a certain number of years, thus getting back your
principal even if the market goes to zero.
Think about that for a minute. Let's say they allow
you to take 7% a year. It would take over 13 years for you to get back
your principal. What are the probabilities of the market being worth
less over a 13 year period? Very, very small.
Or there are the guaranteed income
provisions—referred to as the guaranteed living benefit. Many investors
think that these living benefits guarantee that they will earn 5-7% a
year regardless of what the market does. They believe that if they leave
their money in and 10 years later decide to take it out that they will
have earned at least the 5-7% a year.
Nothing could be further from the truth.
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From the Archives |
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Are Low Cost Annuities A Good Choice?
July 5, 2006 - I’ve disliked variable annuities for many years
because of their high fees and onerous surrender penalties. Now,
low-cost variable annuities are available that slash fees and do away
with the surrender penalties. Does this change my opinion on the use of
variable annuities? Read on to find out.
Read more...
Retired Variable Annuity Investor Gets Justice After
Loss
May 7, 2006 Countless investors have lost large
portions of their investments. Some have been in investments where they
lost everything. But investors looking for help in recouping losses
often find there are few places to turn for assistance. Read on to learn
about one investor that finally got justice.
Read more...
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These living benefit riders don't apply if you
surrender the annuity. They ONLY apply if you take a lifetime income
stream from the annuity. Even then, if you ever cash it in, what you get
is based on the actual earnings of the annuity less any withdrawals.
What you get when you cash it in isn't ever based on the 5-7% guarantee.
Let me explain it this way. Picture two columns on
a piece of paper. The first column is the actual value of the annuity
from year to year. So if the market goes up, so does that value. If the
market goes down, so does that value. The second column is the 5-7%
column. This column takes your initial investment and increases it by
the 5-7% each year.
So 10 years down the road, you decide to cash in
your annuity. You get the value in the first column; the value in the
second column meant nothing.
In a different scenario, let's say that 10 years
down the road you decide to start taking the income stream of 5%. That
income stream is based on the second column. So if the second column was
$200,000 your income stream would be $10,000 a year guaranteed for life.
So far so good.
Time has passed and you have been receiving the
$10,000 a year. Your situation changes and you need (or want) what's
left of the money in the variable annuity. Here's where the surprise
happens. What you get isn't based on the value of the second column;
what you get is based on the first column less any withdrawals you've
made.
Actually, every time you get a payment, they reduce
both columns. That payment affects the growth of the first column (as it
should).
What if you die? Do your heirs get what's left in
the second column? No. Your heirs get what's left in the first column.
That's why I don't place a lot of value on the
guaranteed provisions associated with annuities. I expect that few
people will ever use them or get the benefits that they expect.
That's why an annuity should first be evaluated
based on its investment potential. These benefits are designed to take
your eye off of the underlying investment. Investors can have a false
sense of security thinking that changes in the market won't hurt them.
They will.
When evaluated as an investment, I believe that
there are many alternatives that are much more attractive and that allow
the investor to retain the control, flexibility and access to their
money.
If you have a specific question or would like more
information, give me a call toll-free at 1-877-827-1463 or you can also reach me by email at
jeff@guardingyourwealth.com.
I will answer your financial question FREE.
About Guarding Your Wealth:
“Guarding Your Wealth” is a
nationally syndicated weekly personal finance column written by Jeffrey
D. Voudrie, CFP. Mr. Voudrie is the President of Legacy Planning Group,
a private wealth management firm that employs sophisticated proprietary
strategies designed to protect and grow its clients' investments. Visit his website,
www.guardingyourwealth.com to read past articles under the Guarding
Your Wealth Article Archive that may not have appeared in
SeniorJournal.com.
Guarding Your Wealth for Seniors, on
SeniorJournal.com, is
a collection of columns by Voudrie that deal with issues of particular
interest to senior citizens.
Click here
for all columns.
In addition to being a nationally
syndicated columnist and Certified Financial Planning Practitioner, Mr.
Voudrie provides personal, private money management services to select
private clients
nationwide.
Looking for an energetic expert who
is passionate about financial and wealth management? Mr. Voudrie is an
excellent speaker who will excite and inspire your audience. Mr. Voudrie
is available for a limited number of speaking engagements, television
appearances and radio talk shows. For bookings, email
jeff@guardingyourwealth.com.
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