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No. of Recommendations: 8
Potentially the WORST savings instrument is a deferred variable annuity (DVA). These things sport all manner of fees that will, quite literally, ear your total return lunch. Consider the following typical annual costs:

1. Mortality expense: usually 1 to 2%
2. Sub account fees: .75 to 1.25%
3. Mutual fund 12b-1 fees: .25 to .75%
4. Mutual fund management and admin fees: .5 to .8 (low cost index or MM funds) up to 1.5 - 2% for active management fees, particularly on proprietary funds, usually offered by retail brokerages or insurance DVAs
5. Contract maintenance fees: usually an annual fixed dollar charge, ranging from $20 to $50/yr (may be waived over a certain $$ amount)
6. Premium tax. This varies by state and is more common in cash value life insurance, but in certain states, typically runs .5 - 3%
7. Surrender charges: usually 8 to 10% is charged if annuity holder surrenders the VA, and it gradually decreases to 0 over 5 to 10 years.

Now, do the math. How much are you paying from the VA earnings for the privilege of holding your savings dollars in a DVA?

For example, if the DVA has a gross return of 8% in a given year and all expenses add up to 4%, then 50% of your earnings are being paid out in expenses. Those same dollars held in a discount brokerage, like Fidelity, invested in a mix of passive index funds/ETFs and some actively managed funds should cost, in total, less than .5%, or in this example, about 6.25% of earnings. And keep in mind, in bad years you will pay the if your DVA has an investment return of -5%, and your total annual expenses are 4%, you'd have a net 9% loss.

Your pitiful 17 year return is most likely due to expenses and crappy proprietary mutual funds.

The only time it makes sense to hold savings in a DVA is if you are in the maximum Fed and State income tax bracket and you need additional tax deferred savings beyond your employer retirement plan and your IRA....and only then would I consider a DVA as offered by someone like Vanguard or Fidelity whose expenses are considerably less.

So if you're past your surrender date, I'd withdraw the account balance, pay the tax on the small gain you have, and redirect into a taxable brokerage account with Vanguard, Fidelity, TRowe Price, TD Ameritrade or the likes....but get it away from the insurance company...then asset allocate.

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