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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76418  
Subject: Re: Annuities = Bad Choice For All? Date: 4/18/2008 2:08 PM
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I occasionally sell annuities.

Roughly 5-10% of my investment sales comes from various annuities, both fixed and variable. All of the ones I sell pay commission.

They do have their place in the financial spectrum - but obviously they are not for everyone.

I view annuities the same way I view life insurance. You buy life insurance generally for two reasons, to replace the income from a lost loved one or to set aside a portion of money for your estate. Some will buy a small policy to cover final expenses but those are generally very small policies.

Annuities are a form of insurance. I generally recommend them only under two scenarios - where a person needs guaranteed income and/or where a person wants to guarantee a future amount (death benefit or otherwise).

If you are not trying to guarantee either of those two, then you likely will receive no benefit from an annuity.

Various riders can guarantee income, growth, and death benefits but all come at a cost that will reduce the overall performance of the same investments held outside of an annuity.

I am not specifically familiar with the one you mention but I have seen it advertised in many publications. My guess is that it will guarantee a WITHDRAWAL of 7% of the maximum account value. Note a WITHDRAWAL is a guarantee that you will get your money back, it is not the same as INCOME.

Generally, GMWB (guarantee minimum withdrawal benefits) will pay out a fixed percentage based on various account values (in this case, highest yearly value?) over a set number of years. If you are getting 7%, that typically will mean payments over the next 14.2 years (14.2 x 7% = 100% --- all your money back). If you have a 5% GMWB, then you get payments for the next 20 years.

Note, they are not providing a guarantee that your money, your principle, will grow by 7%. That is a very common confusion.

Again, unless you are planning to use this money for guaranteed income in the future, this is not likely for you.
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