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I disliked variable annuities for many years due to their high fees and onerous surrender penalties. Now, low-cost variable annuities are available that cutting rates and end the pains of delivery. Does this change my opinion on the use of variable annuities? Read on to find out.
There are 1.8 trillion dollars dollars invested in annuities and much of that money in variable annuities. To put this in perspective, $ 2.1 trillion in 401 (k) assets. That is correct. There are almost as much money in annuities as there is in 401 (k) retirement programs!
As mentioned in previous articles on annuities variables, variable annuities are sold by two main features – the tax deferral and a guaranteed death benefit.
Deferrals tax is highlighted if they are investing money for retirement. Instead of having to pay taxes on dividends, interest and profits of each year, Taxes are deferred until you withdraw money from the annuity.
This used to be an attractive option, but not from capital gains tax rates and on dividends have been reduced to a maximum of 15%. You see, earnings withdrawn from an annuity are taxed at higher rates than ordinary income. These can be as high as 33%.
In recent years there was not much difference between ordinary income tax and taxes on dividends and capital gains. Now, there is a substantial penalty when earnings are taxed as ordinary income. As a result, may take decades before we really see the benefit of tax deferral.
The other main selling point of variable annuities is the death benefit guarantee. Investors like the comfort of knowing that even if the market goes down significantly, the heirs receive at least what they initially invested when they pass away. This is used to attract investors to choose an annuity for your IRA that annuity tax deferral feature is useless.
Unfortunately, investors had to pay through the nose for those benefits – typically 1.4% of their account value each year. In an account of $ 200,000, you would pay $ 2,800 a year. Over ten years it is likely that these benefits would cost more than $ 30,000. That's part of the insurance more expensive than ever to buy.
Now there are new, low-cost variable annuities available companies like Fidelity and Vanguard that reduce the costs of these benefits. For example, Fidelity offers one that charges 1 / 4% in fees each year. That is 1.15% less each year, then the typical variable annuity. Equities Fidelity continues to offer the much touted advantage of tax deferral, but offers no guarantee benefit death.
If the death benefit is the main reason you want a variable annuity, you can accomplish it with the Fidelity equity for the purchase of a separate life insurance policy in the long term. Doing so would save 60-year-old non-smoking man of nearly 15,000 dollars more than ten years against the typical equity.
As investors age, decreased these savings. But even then, you have to realize that your 'guarantee' is actually much higher with private life insurance than it is with the broker sold variable annuity. In the broker-sold variable annuity, their well get the market value the contract or the death benefit, whichever is greater.
When you buy a low-cost variable annuity and life insurance separately their heirs will receive the value annuity market PLUS the death benefit of life insurance policy. Even if the income lost half its value, your heirs still end up with 50% more that annuity sales agent. So even if it costs the same is still more benefits. And you can keep the insurance policy, even if you cash out your pension.
The only situation I would recommend a low cost, no surrender penalty if variable annuity is currently no money for retirement on a high cost variable annuity and have accumulated a significant increase. Even if you have delivery charges can be useful – see how many years it take to make a difference.
For everyone else, still not recommend it. If you have IRA money in an annuity, I suggest you not when your annuity IRA surrender penalties end. You can achieve the same benefits from a much lower cost.
About the Author:
Nationally-syndicated financial columnist and Certified Financial Planner Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He’ll answer your financial question FREE at http://www.guardingyourwealth.net/
Article Source: ArticlesBase.com – Annuities: Are Low-Cost Annuities A Good Choice?
