Annuities: A big rip-off?
LOS ANGELES (CBS.MW) — Funny thing: Financial journalists regularly trash annuities as bad investments for most investors and still annuity sales are increasing 20 to 25 percent annually — about 20-fold since 1985.
Guess who loves variable annuities? Insurance agents and investment salespeople who earn sizzling commissions selling them. A 7-8% commission
Fees typically are very high, Some variable annuities cost 3-4% per year.
Surrender Charges last from seven to 14 years.
First, listen to the press’ negative reaction toward annuities:
· Kiplinger’s: “Boy, have they got a deal for you. But more smoke and mirrors can’t disguise the simple truth that most investors can do better elsewhere.”
· Investment News: “Too many sellers are burning consumers … buyers of variable annuities have no idea what they’re actually buying, and many have been lured into an inappropriate investment vehicle.. many, if not most, elderly will see little or no benefit from a tax-savings strategy that can take 10 to 15 years to pay off.”
· Forbes: “The great annuity rip-off… Forbes doesn’t rate variable annuities. Why? Because they’re stupid investments for nine and a half people out of 10. The only people who benefit from these things are the people who sell them… the average annuity is nothing you would want.”
· Smart Money: In “Ten Things Your Variable-Annuity Seller Won’t Tell You… Legions of brokers, insurance salesmen and independent financial advisors are clamoring to sell them. Why’s that? ‘You can’t get a bigger commission for anything else these days’ …about twice what your broker usually gets for peddling a mutual fund.”
· USAToday: “Variable annuities are popular with unscrupulous financial advisors — insurance agents, financial planners, and brokers. Too many of these advisors steer clients looking for simple mutual fund investments into variable annuities instead because of the fat commissions.”
· AAII Journal: “Deferred annuities are popular because returns are tax-deferred, but if the full cycle of accumulations and distributions are considered, most purchasers would make a different choice.”
· Fortune: “Both [fixed and variables] are bad investments for most people because the tax-deferral comes at a steep price — namely, high fees, a lack of liquidity and capital gains that are taxed as ordinary income rates when withdrawn …And if you die early, you forfeit what’s left… The best solution: The next time the annuity salesperson comes calling, don’t answer the door.”
So what’s the bottom line on annuities? Annuities look like such bad investments and have been getting such consistently bad press that my guess is savvy online investors are already avoiding this rip-off. So this column may never reach the people who really need the information, unless you pass it on!
http://www.marketwatch.com/story/annuities-a-big-rip-off