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Investing/Strategies / Retirement Investing
|Subject: Re: Annuity||Date: 11/26/1998 11:35 AM|
|Author: TMFPixy||Number: 6784 of 76887|
Greetings, Perla, and welcome. You wrote:
<<I h ave an IRA ACCOUNT in CD which will mature shortly. I am thinking of putting it in an annuity. This is a single premium deferred annuiy with equity index option. Suppose to pay interest based on the S& P 500. I am not sure if this is a good investment? I am 70 yrs old now and will be required to withdraw 10% each year at 70-1/2 year old - and doing so will not be penalized by the company. How does an annuity account compare with CD's, MM, etc? Is this a good move? I would aprpeciate any help from someone who knows annuity, insurance, etc???>>
It sounds as if you're interested in maintaining the tax deferral of the IRA. If so, using an annuity for that purpose is somewhat like using an umbrella indoors when it's raining outside. You don't need the extra expense of the annuity to continue the tax deferral. Also, read the fine print of the annuity carefully. The guaranteed return on that annuity is almost certainly not based on the total return of the S&P 500 Index. Instead, it's probably tied to the capital appreciation return which excludes dividends. Historically, the latter provide about 40% of the total return in the S&P when reinvested. Thus, on the upside the index could be 10% for the year, but you would only see 6%. On the downside, the annuity would guarantee you wouldn't take a loss and instead would probably get a 4% return or so. Thus, that protection doesn't come cheap but it does provide some downside security. For me the cost is too great given the fact that downside doesn't come all that often.
All told, unless you desire the guarantee in the annuity, IMHO you're money ahead just rolling that CD to an index fund like the Vanguard 500. You can still take your required minimum distribution without a problem, will enjoy a full return in the S&P 500 index, and will have far less expense in doing so. It all depends on you, your need for a "steady" income source, and your ability to tolerate the ups and downs of the stock market.
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