March 12, 2014

Can you name the many negatives that come with owning annuities? Why do so many people own them?

3 thoughts on “March 12, 2014”

  1. Garrett Haag says:

    An annuity ties up your money for long periods of time, usually at an minimum of 7 years, they have rather high fees and costs that come with them, also if you want to pull your money out early you will pay a very high early withdrawal fee, the return on an annuity is not very good in the first place, alot of the time they will give you a teaser rater to start with and will lower your return the longer you have it. There are also penalties if you withdrawal the annuity early before you are at the proper retirement age. They are also not tax shelters like they claim to be.

  2. Kat Graham says:

    Annuities have very high yearly fees (to pay the salespeople their high commissions) and you’ll have to pay steep penalties if you try to get your money early. So many people own them because the salespeople are very good at what they do, and a lot of investors don’t take the time to research whatever it is that they are thinking about investing in BEFORE they invest their hard-earned money.

  3. Mike Finley says:

    Well said, you two! Let’s review.

    Annuities cost a lot! They pay high commissions to salespeople (financial advisors and life insurance primarily), which leads to high yearly fees. Average fees each year run around 2.5%.

    They lock up your money and only let you have it when you are quite old (59.5 years of age). If you try to get it earlier, you will probably pay a high surrender fee running from 7% downward based on how long you have owned the annuity.

    They offer teasers. A high introductory rate entices you in and then they drop that rate after a year or so to what the market is paying at that time. They know they have locked up your money and that is why the teaser works, FOR THEM.

    They do not have a step up basis if you die. This means your beneficiary must pay tax on your earnings over your lifetime. A regular stock mutual fund would have a step up basis, meaning when your beneficiary received it, there would be no taxes owed.

    You are at the mercy of the life insurance company. If they go belly up, you could really have a problem. All of your eggs are in one basket so to speak.

    Bottom line? Stay away from annuities and the salespeople who sell them. You don’t need them, you cannot afford them, and you certainly want to spend more time in the company of your local life insurance agent. AVOID ANNUITIES!

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