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Millions of seniors are sold
equity-indexed and variable annuities with promises of guaranteed
returns with little or no risk. And hardly a day goes by that I
don’t hear from some frustrated investor who finds him/herself
trapped by one of these investments. Let me paint a very clear
picture of the dangers of these products and share some pointers for
those who have already bought one.
Annuities (especially equity-indexed annuities) are the product of
choice for insurance agents and other commission-based advisors.
Why? Because it’s an easy sale for the advisor, it pays a huge
up-front commission and it locks the client in for several years so
little attention has to be given the client or his/her money.
Annuities are an easy sale for an agent because, in theory, it gives
the investor everything they could ever dream of. Agents tell you
that equity-indexed annuities can give you the returns of the stock
market in the good times without any of the risk. In fact, they will
guarantee you will earn a minimum amount even if the market crashes.
Those selling the latest variable annuities will explain that you
are guaranteed a 7% return! They’ll tell you there’s no way to lose
money.
Wow! What an investment!
That’s not all. If you invest today the insurance company will even
pay you a bonus! Some pay a bonus as high as 12%! Think about that,
Mr. Prospect. If you transfer all of your $1,000,000 retirement
account into this whiz-bang annuity, you’ll get $120,000 right off
the bat. Is that great or what?
Why, you’d be an idiot to not instantly throw every dollar you have
into one of these. Some agents out there are even recommending you
borrow money to put into these annuities!
Oh, if only it were so easy. But it’s not. Give me a break!
First, what the agent or advisor isn’t telling you is that he/she
can make as much as 10% off of every dollar you put in. If you
transfer that $1,000,000 retirement fund into one of these, the
agent may make $100,000! Did the agent happen to mention that? Talk
about conflict of interest!
Second, do you really think that an insurance company is going to
give you a 12% bonus AND pay the agent a 10% commission AND that the
money isn’t somehow going to come out of your pocket? Come on.
How can the insurance company pay out 22% right up-front and still
stay in business? I remember seeing a humorous sign at a local
business: “We rip-off the other guy and pass the savings on to you!”
Is that what you think the insurance company does?
Nor is there an insurance company on the planet that can guarantee
you will earn 7% a year on a variable annuity. None.
There’s always a catch. The problem is that it is very hard to find.
Unless you are a Philadelphia lawyer and can parse every word of the
contract you aren’t going to see it. Most advisors don’t even see
it!
For the millions of seniors suckered into these products, there’s
little they can do. They’ve contacted their State Department of
Insurance to little or no avail. They’ve pleaded with the insurance
company. Often, they are advised to go to an attorney. What should
you/they do in this situation? The options are very limited.
First, I recommend withdrawing the penalty-free amount that is
available each year and transferring that money somewhere else. If
the annuity is an IRA, you can still transfer that penalty-free
amount to another non-annuity IRA each year without tax
consequences.
Second, you have to determine if it is better to pay the surrender
penalty or wait it out. Brad, who recently contacted me, is choosing
to pay the 15% penalty. An agent sold his 89-year old father an
annuity with a 15-year surrender period! What topped it off was that
the heirs will have to pay a surrender penalty to get the money if
his father dies before age 104!
It’s a very expensive education for those in this situation. That’s
why I speak out so strongly against these products. There isn’t an
easy way out. And remember, there’s always a catch. Don’t take that
chance. Stay away.
I’ll personally respond to your questions, free of charge. Go to
http://www.guardingyourwealth.com and click on ‘Ask Jeff’.
In addition to being a nationally syndicated columnist and Certified
Financial Planning Practitioner, Mr. Voudrie provides personal,
private money management services to clients nationwide. |
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