4 Reasons to Say No to Annuities
Have you ever considered an annuity? If you have, you are not alone! However, here are four reasons why you may want to pass…
1. The Annuity Broker Is Biased
There is a reason annuities have become so popular over the years. The commission the salesperson receives from selling you this product can be as high as 10%. On a $500,000 annuity, that’s $50,000. It may be hard to remain unbiased when that kind of money is on the line.
2. Annual Fees are High
Between the mortality and expense fee, administrative fee, optional riders, and fund operating expenses, you are looking at about 3-4% on average in annual fees. That is a substantial amount that will make it very difficult to produce satisfactory long-term returns. On that $500,000 annuity, you are paying between $15,000 - $20,000 annually!
3. Tax Deferral is Redundant
I hate seeing this one…One of the few benefits of owning an annuity is that it is a tax-deferred investment. However, sometimes clients own an annuity within an IRA, which is already a tax-deferred account. So purchasing an annuity within an IRA is simply redundant.
4. You are Locked In
Ever heard of the term “surrender period?” Essentially, whenever you buy an annuity you are locked in for a certain amount of time. Usually this is a seven-year window. If an emergency comes up and you need the cash before that period, you are hit with a fee that might be as high as 10% of your investment.
If you own an annuity and want some help understanding and analyzing it, feel free to send us an email here! Hope this article was helpful!
Added 11/14/2018 by Jason Siperstein, CFA, CFP®