Are deferred variable annuities a smart investment for someone in my situation?
Posted by MarkMay 29
I’m 50 and have 0k of investment funds that I was thinking of putting into a deferred variable annuity. This is money that I don’t expect to need until retirement. Assuming I don’t get ripped off fee-wise, are things generally considered to be a good investment vehicle for someone who maxes our 401-k and IRA and is looking at reitrement in 15 years? If so, are some of the bells and whistles such as death benefit and gteed values generally considered to be worth it?
Thanks.
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The fees of a typical variable annuity wipe out the advantages of "tax deferral". Worse yet;
A Mutual Fund, Stock or ETF investment is taxed at the capital gains rate (which is good).
Annuities are taxed at your earnings rate (even if they’re in stocks)….. If you’re drawing money from your IRA’s and 401K’s…….. you may be paying a very high rate when taking distribution.
The "death benefit" of a variable annuity is……. minimal. A good asset allocation usually minimizes
the exposure of dying when your account is under water. You are only guaranteed what you put in. After a few years…. you’ll be paying fees for a death benefit that means nothing… even if you pass. It’s a little complicated to explain here…. but bottom line…… it’s a waste.
If your financial counselor is pushing a Variable Annuity…… run from them as fast as you can. Their commissions on these products are designed to blind them to how poor a product these really are.
I consider annuities a very expensive way to invest. Since you mention ripoff fees, I suspect that you have already figured that out.
Letting taxes drive your strategy can lead to poor investing decisions. If your investing is sufficiently successful, taxes are a fairly high class problem. If you reside in a high tax state, then in-state muni bonds might make sense.
If you invest part of your portfolio in individual stocks, long term buy and hold is pretty tax efficient.