- 7,790
- 1,641
Testimonial for fixed.
- 924
Quoting from Suze Orman:
Q. "My financial advisor is recommending that I buy a variable annuity within my retirement account. What should I do?"
A. "Get yourself another financial advisor, pronto."
- 15,041
Just curious, it seems like you primarily sell FIAs. Do you put any in retirement accounts?
- 1,641
There are legitimate reasons to put qualified money in an FIA.
Wrapping an FIA in a variable doesn't pass the smell test. You let me talk a client that has a wrapped account, and I'll show you a client that is angry and feeling violated.
- 15,041
I would agree. My point was, if it is ok to do it with an FIA, why is it not ok to do it with a variable annuity?
Not sure what you mean here. To the best of my knowledge, you can't put one annuity inside another annuity.
- 924
Short answer: a variable can lose money. A variable therefore can become a trap where you can never look at other products because the 7 year commitment you thought you signed up for becomes a lifetime commitment -unless you want to go ahead and take the losses. And losses within an IRA are a lose-lose situation.
So, the criticism from brokers is frequently: "Why on earth would you put a tax-deferred instrument inside a tax-deferred IRA?" Wow, the hypocrites then put people into high-fee mutual funds or whatever, and watch them take a bath. "Oh, just hold on for the long run. It always comes back. You can always take out 4% to live on and it will still grow." Yeah, right. How is that working out for everyone?
The point is, tax deferral is the least important feature of a fixed/indexed annuity. Honestly, how many people here, if they could go back to early 2007, would rather have put $500k in an indexed annuity with an income rider guaranteed to return 6% in deferral that allows them to take lifetime income at a guaranteed and predictable minimum amount for life, or $500k in a mutual fund? Go ahead and figure the money for someone who was 65 in 2007 and where they would be right now in either scenario. Personally, I would rather be able to turn on lifetime income at age 70 and know I wasn't going broke between RMDs and future market cycles. $500k left to a broker until age 70 could be anything -or nothing.
So, the criticism from brokers is frequently: "Why on earth would you put a tax-deferred instrument inside a tax-deferred IRA?" Wow, the hypocrites then put people into high-fee mutual funds or whatever, and watch them take a bath. "Oh, just hold on for the long run. It always comes back. You can always take out 4% to live on and it will still grow." Yeah, right. How is that working out for everyone?
The point is, tax deferral is the least important feature of a fixed/indexed annuity. Honestly, how many people here, if they could go back to early 2007, would rather have put $500k in an indexed annuity with an income rider guaranteed to return 6% in deferral that allows them to take lifetime income at a guaranteed and predictable minimum amount for life, or $500k in a mutual fund? Go ahead and figure the money for someone who was 65 in 2007 and where they would be right now in either scenario. Personally, I would rather be able to turn on lifetime income at age 70 and know I wasn't going broke between RMDs and future market cycles. $500k left to a broker until age 70 could be anything -or nothing.
- 15,041
So again, why is a FIA with income rider appropriate, while a variable with GMIB or GMWB rider not? Yes, the FIA won't suffer losses, but the income rider isn't free. In either case, you can end up with a benefit base that is higher than the account value. So if you want to enjoy the benefit base, you're stuck.
- 924
FIA: ten year commitment. Walk away and find a better product down the road if you want.
Variable: Hope that there is more money than when you started (not seen many recently) because if you want to change to something else down the road, you will have to eat those losses.
I've seen so many of these recently. Death benefit or income "available" line in bold print (OK, die or start taking income). Actual value of account in smaller print down the page, often 30% below the original investment. "Sorry, I know you don't like this variable you're in and want to change to what I can offer, but you would have to take too big a loss to get out."
Variable: Hope that there is more money than when you started (not seen many recently) because if you want to change to something else down the road, you will have to eat those losses.
I've seen so many of these recently. Death benefit or income "available" line in bold print (OK, die or start taking income). Actual value of account in smaller print down the page, often 30% below the original investment. "Sorry, I know you don't like this variable you're in and want to change to what I can offer, but you would have to take too big a loss to get out."
