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Are variable annuities ever a good idea..
Old 02-03-2020, 06:38 PM   #1
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Are variable annuities ever a good idea..

I am using a fin. advisor for my 401 K. ($700,000) He recommended a variable annuity from Jackson called Lifeguard Freedom Flex DB . I honestly donít understand how it works completely but he painted a picture of big returns and the option for aggressive growth. I have always considered variable annuities a bad investment, but would love to hear an assessment from this group if you have had any experience with this product or something similar. I have a pension that takes care of my cash flow needs and will take SSI at 66. I will not need to touch the funds for at least 10 years. ( I retired Jan 2 2020 at 61)

Also , my wife will work for another 10 years. My initial first reaction was to reject this option but wanted to do my due diligence before I started shooting holes in his plan.
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Old 02-03-2020, 07:00 PM   #2
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My DF sold annuities, later in life I asked why he didn't have one?

Where I was a programmer there was a group that did variable annuity withdrawal programs. They were an odd group nobody talked to them much, better yet nobody really knew if the programs actually worked.

What you buy with a variable annuity you buy a contract written by the insurance companies attorneys. They know all about what is good for them and not so good for you. Your gains will be capped, and so will the insurance companies losses. Sometimes called heads I win, tails you lose. The salesman will take your money, earning a hefty commission, and go confuse someone else.

Remember the first rule. Don't invest in anything you don't understand. 0/10 don't buy. FYI: If you don't feel comfortable please do something like calling Vanguard and signing up for their offering for managing your money. For .30 and low fee index funds it's a great way to learn. After a while you will feel comfortable to DIY, or not. Stay away from that "advisor".
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Old 02-03-2020, 07:02 PM   #3
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I would rank buying a variable annuity among my biggest financial mistakes. The only way Iíd recommend these is if you are the one selling them.
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Old 02-03-2020, 07:02 PM   #4
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I'm sure others might be able to put it more eloquently, but fire that advisor.


Variable annuities are in effect a very complicated insurance product that come with substantial ongoing fees.



If you want insurance--simply buy insurance directly from a provider.

If you want long term growth in the stock market--but an S and P index fund.

If you want income-buy CD's or bonds directly.



"growth with capital preservation" as they are commonly pitched is an oxymoron.



This whole idea of you can get "guaranteed income" AND growth in the stock market AND you're protected on the downside is total rubbish.
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Old 02-03-2020, 07:17 PM   #5
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Old 02-03-2020, 07:18 PM   #6
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Recommending variable annuity by your advisor is the same as the financial advisor wants some of your money to become his/hers.
I would fire the advisor
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Old 02-03-2020, 07:19 PM   #7
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Yes, the are the investment product of choice for the annuity sales rep few things take more of the investors money and goes it in the pocket of the firm and sales rep

Now for the annuity sales folks to chime in before being banished If someone is pushing variable annuity , run away
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Old 02-03-2020, 07:19 PM   #8
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I always heard that variable annuities it is bad. Subscribe this thread to learn about it.
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Old 02-03-2020, 07:33 PM   #9
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.... I honestly don’t understand how it works completely but he painted a picture of big returns and the option for aggressive growth. ...
That is how they sell them.... they make like they are your friend and that variable annuities are great and hope that you trust them and buy so they get their commission (probably in the range of $35k in your case).

In order to qualify as an annuity your variable annuity will pay a mortality and expense fee which is what allows annuities to be tax-deferred... but that cost is a waste in your case because your 401k is already tax-deferred.

What you want to buy in a 401k is an mutual fund investment, not an annuity.

Ask them if you put in $100k and in a year change your mind and want out how much of your $100k you get back ignoring any growth of the VA... you'll be shocked.

P.S. Much of my career was working in financial management for a life insurer that issued annuities, including variable annuities.... but they also issued mutual funds.... our 401k did not include any annuities.... and I would never buy a VA... the only annuity that I would ever seriously consider would be a SPIA or a plain-vanilla deferred annuity (similar to a CD but issued by an insurer).
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Old 02-03-2020, 07:49 PM   #10
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If you do not understand something, do not buy it. Ever. No matter what it is.

A good friend of mine worked for a large insurance company that was a top seller of annuities. All types of annuities. This friend worked in the annuities business for many years. His advice: don't ever buy a variable annuity.
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Old 02-03-2020, 08:08 PM   #11
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Old 02-03-2020, 08:51 PM   #12
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I would rank buying a variable annuity among my biggest financial mistakes. The only way Iíd recommend these is if you are the one selling them.
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I am very appreciative for the input from everyone. You have been a great resource
Old 02-03-2020, 09:09 PM   #13
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I am very appreciative for the input from everyone. You have been a great resource

My instincts were right on this one.
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Old 02-04-2020, 07:33 AM   #14
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I was sold a VA back in 1997. It sounded too good to be true and after funding it heavily for the next 20 years I can tell you with certainty that it was too good to be true. The fees are extremely heavy and growth is limited.


I would never, ever touch one again.
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Old 02-04-2020, 07:48 AM   #15
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The only good variable annuities, to my knowledge, are from TIAA. And these can be immediate annuities, meaning you fund them a few weeks before your lifetime monthly income stream starts.

I have several thousand $$$ per month retirement income from TIAA VAs based on CREF Stock and the TIAA Real Estate Account (TREA).
I "annuitized" these VAs in 2013 and my monthly income from them has increased nicely since then due to increases in the broad stock market and commercial real estate.
This fixes a major problem with most SPIAs which don't track inflation...
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Old 02-04-2020, 08:10 AM   #16
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Old 02-04-2020, 08:18 AM   #17
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I would bet the family farm there is clause in the VA contract that says something to the effect that only the contract governs the annuity and whatever the sales guy/gal says or whatever some brochure may seem to promise does not mean a thing.

The best annuity in the USA is to defer SS to 70. The next best one, if you need it, are the SPIA - single premium immediate annuity. But, thanks to low interest rates they are not a great deal at the moment.

I think you would be better off making sure that $700,000 is wisely invested in several index funds that diversify your portfolio. You don't need a FA for that. A few hours on this site reading various threads and it will EZ-PZ.
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Old 02-04-2020, 08:21 AM   #18
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Equity-linked variable annuities have high fees (as others have noted) but what's worse IMHO is that they also:

1. Cap your annual gains (usually no more than 7%)

2. Usually keep all the dividends (that's another ~2%/year you lose)
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Old 02-04-2020, 10:04 AM   #19
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The earlier suggestion to consider Vanguard is spot on - if you feel that you need an "advisor", Vanguard will provide excellent guidance and will charge you so much less than your current FA. Run from that FA.
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