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Investing/Strategies / Retirement Investing
|Subject: Re: Yield in low interest rate environment||Date: 7/14/2013 5:10 PM|
|Author: op456op||Number: 72610 of 80171|
I agree annuities are a poor investment. Money Magazine August issue has an article on the changes going on in annuity products, in particular, variable annuities. Any guarantee is always dependent upon the company being able to pay what is promised. Now they're all changing the rules limiting what people can invest in. Plus, they'll usually push their Class A funds which generally have 5% front load fees. That's a $25,000 commission on a $500,000 investment. It will take a lot to overcome that, if at all possible.
Over the past 18 months, most of the insurers that sell these products have seriously scaled back guarantees offered on new contracts while
hiking fees and restricting investment allocations on both new and existing policies. Seven major firms, including AXA, John Hancock, and
Prudential, have limited or prohibited additional investments in some of their older, more generous contracts.
While each insurer is tweaking its terms differently, there are a few common threads: limited investment freedom, tightened minimum return and income guarantees, and higher fees.
If you have a VA or were thinking of buying one, you're probably wondering where all this leaves you. For owners, the answer depends on your contract, your account value, and the changes to your terms. For income shoppers [your parents], it ultimately comes down to what risks you can accept though there are cheaper, simpler, and more profitable ways to ensure that you won't outlive your money.
Fixed Income annuities run the risk of once a person(s) dies, the insurance company keeps any remaining balance. At age 80 that seems like a high risk to lose a lot of capital. CD's would be safer, laddering them can help increase/maintain yield as interest rates rise.
Or sensible EFT's (as mentioned), I like Vanguard for their no commission on Vanguard ETF's. VTI, VIG, VYM & VOO might be good choices. They'll be some overlap of holdings between the ETF's.
I couldn't find the Money article on online (you might want to get the mag) but here is a site that offers some good information. It's always the fees that (and there are many - mostly hidden) limit your return. Just read one of their annuity compensation disclosures.
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