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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 25242  
Subject: Re: 401k Date: 7/12/2010 1:31 PM
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There's an Annuities board where we try to collect most postings on annuities. Here is a typical discussion thread--

http://boards.fool.com/Message.asp?mid=26001667

Variable annuities tend to be high commission products for the salesman who sells them. And they are usually carefully crafted to create a good sales pitch. But most of them are never annuitized. Instead once your surrender period is over, expect the salesman to try to sell you a "better" annuity. So he collects another commission on the same money.

BruceM covered the problems with the one you mention quite well. Usually the guarantee relates to the cash value when annuitized. If you take your money out or move it to another annuity, the guarantee may not apply. The return is often tied to an index like the S&P 500, and can do quite well in a good year, but the payout is often capped. So when to stock market has a run up, you don't get the full upside. But you do have some protection on the downside.

The main advantages of a variable annuity are that your money grows tax free and your investments are professionally managed. But most would be better off in a mutual fund, which are much less expensive. And the tax free part is usually less costly in an IRA or 401K (and other similar plans) if you qualify.

Finally, note that immediate annuities can be useful to some in retirement. Then the insurance company guarantees a fixed payment for life. That can be a useful way to cover basic retirement expenses, but most do not offer inflation protection. The amount paid is usually fixed for life. Meanwhile, if you expect to be retired for 30 years or more, your living expenses will probably double at least once. That is why equity investments are probably important for part of your funds to try to keep up with inflation.

Note that the immediate annuity (or a variable annuity after it is annuitized) usually pays a fixed amount for your life or like pension plans can be set up to pay to you or your spouse. Or some pay for a specified period. Whenever the period specified expires, any remaining funds go to the insurance company, not to your heirs. That is why most choose not to annuitize their variable annuities. And to guard against passing soon after the contract is annuitized, many elect a minimum payment period of say 20 years. Then payments continue for 20 years even if you pass earlier. So that is a usual way to provide for your heirs in these contracts. But the price is smaller monthly distributions in return for additional guarantees.

Annuities are very complex products. Make sure you get a saleman who truely knows the contract and all of its features. And if you buy, be sure to keep all of the information so you know your contract.

As to T Rowe Price, they are headquartered in Baltimore and noted for their low cost mutual funds and related products.

If you do buy an annuity be sure to check out the offerings from Fidelity, Vanguard, TRowe Price, and TIAA-Creff. They offer low cost annuities often without surrender periods.
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