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Author: TTRoberts Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75378  
Subject: Re: CONVERT 401K INTO ANNUITY Date: 11/23/1999 1:53 PM
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DDEVENY, you asked:

<< I HAVE BEEN UNABLE TO CONVINCE MY WIFE THAT IT WOULD BE ABSURD TO CONVERT HER FULLY VESTED 401K OF APPROX. $80,000 HANDLED BY TRANSAMERICA INTO AN ANNUITY WITH THE HARTFORD RECOMMENDED BY HER FRIEND, BROKER BILL. CAN ANYONE GIVE ME ANY "AMMUNITION" TO USE TO CONVINCE HER THAT AN ANNUITY SHOULD NOT BE USED IN A 401K OR IRA? >>

It would be helpful to know WHY you haven't been able to coin vice your wife . . .??? What is it that's she's so interested in for an annuity?

We can ASSUME we're talking about a "Variable Annuity" . . . . and we can ASSUME were talking about a "Deferred" Variable Annuity ???? We can also ASSUME that this is the be a Deferred Variable Annuity inside of an IRA??? If so, she needs to realize that the expenses that cut into performance will be a little higher (about 65 basis points on average according to an Ibbotson study) than if she just used a mutual fund. She should also note that the number of investment choices are much less that if one is looking to mutual funds. Most importantly, she NEEDS to fully realize that there is a "surrender period" where if she should change her mind and want to change to something else (even some other annuity) within there period, she's going to wait to the end of that period to avoid a surrender charge which can be very substantial in the early years.

It's not that the annuity might not do as well as a comparable mutual fund selection . . . it's that there are more restrictions if one goes with an annuity along with slight higher expenses EVERY year.

Note: Though someone has brought up the commission issue, one needs to realize one can earn just as much commission on a mutual fund recommendation as one can with an annuity recommendation. Those who can sell variable annuities can also sell mutual funds. Also, commissions are handled a little different with an annuity than a mutual fund. In a mutual fund the commission (the load) is taken off the top and the difference invested. With an annuity, the full amount is invested . . . the commission is NOT taken out (the primary reason for the surrender charge period . . .which acts like a deferred load that declines over the period and eventually goes away).
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