Business Planning: “A Premier Retirement Variable Annuity”- A Wise Investment or a Nuisance?
DEAR HARRY: I plan to retire in April when I hit 64. My insurance agent is suggesting that we put $200,000 into a premier retirement variable annuity with a major insurance company. He says that I’ll be guaranteed a return of 5.8 percent if I defer payments for seven years. After that, I’ll be able to draw a lifetime income of $24,821 per year. If I should predecease my wife, she would get the same amount until her death or receive a death benefit of $496,424. This sounds pretty good to me, but I’ll have to wait until my 70s before I get a dime. Also, the $200,000 would take a huge bite out of our portfolio. Does this seem like a wise investment?
WHAT HARRY SAYS: Let’s just examine those numbers. At a rate of 5.8 percent, your $200,000 would accumulate to $296,800. If you died on that date, they would give your wife $496,424? Not a chance in a pig’s eye, unless that plan has a life-insurance element! And assuring your wife a death benefit of a fixed amount upon your death regardless of when it comes in not very likely without some life insurance. Moreover, I rarely recommend annuities because they frequently have hidden charges. Variable annuities also put a big part of the risk on the purchaser. Stick with some index mutual funds from Fidelity, Row Price or Vanguard. And be careful in your dealings with this agent. He’s sweet-talking you.
Reference: Harry Gross, Philadelphia Daily News (January 6, 2014)
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