variable annuity

[daddyhoney]

I am about to retire from a city police department and I have saved a generous sum in a tax defered 457 plan along with the standard city retirment and other investments. A financial advisor who has serviced this any many other police agencies for years is talking to me about rolling over my tax deffered account into a variable annuity. The radio talk show investment guys often say to run from anyone who tries to sell you an annuity becauses it locks up you cash among other reasons.
In this case the advisor says the product is offered by Pacific Life, insures your principle, has a three year surrender charge rate, is up graded each year to the highest interest earned and can not be reduced. His fee is 40 points, I can choose the level of risk I want to be invested at and the percentage at which I wish to withdraw at.
The 457 plan has low fees and has a moderate range of investment tools to choose from and I can get what ever money I need at any time.

Ok geve me the truth on this issue please. Thanks in advance, Gary

[Sow Trout]

Don't Don't Don't
Your investment advisor is trying to make himself some money while disregarding you. Sometimes an annuity might be justified for its tax deferred status, but you can roll your money into an IRA which is tax deferred also. There is no need to tax defer a tax deferred account. Maybe you should consider locking this guy up before you leave the PD. Just roll your money into a IRA and get a fee only planner to help you make the investments.

[Reel-tor]

Listen to Sow Trout! He said it all. I'm just reinforcing what he said.

[flatscat1]

There is a time and place for variable annuities, but it completely depends on the client's needs. They are costly for sure, but the question is how much is the guarantee worth to you and what other alternatives will satisfy your needs?

You need to net out the cost of the annuity and the returns you expect to generate. Do you think we are entering a bull, bear or sideways market? What is the initial minimum established at the onset of the annuity?

Also, what are the surrender fees? What if you or your family need access to the funds in an emergency? Do you have aging parents or kids entering college? Need a new house?

What funds are available to you within the annuity and how often is the "high water mark" re-established (yearly, quarterly?)

What are you trying to accomplish? Live off dividend income from investments? Secure only a portion of your retirement funds? What is your tax rate in retirement? Figure out how much you have in non-retirement accounts?

Depending on your goals, total assets, time horizon, and cash needs (figure out how much $ you need/month) then you may be able to achieve all your cash/spending needs through diversified fixed income investments......then put the rest of your capital to work with institutional money managers running the equity allocation and attribute a small percentage to non or low-correlated investments, like hedge funds, private equity, natural resources, real estate. Stay diversified by size, style, geography and asset class.

In short, evaluate all your options. Create a financial plan and see what investment vehicles are available to enable you to accomplish the plan, then go with the one that is most cost effective and least risky.

In general, I am a fan of rolling retirement funds into IRA's as you retain the benefits while opening up your investment options significantly.

[Skeeter Bait]

Run as fast as you can. There is a special place in Hell for people who sell annuities.

Some slime ball convinced my 83 year old father to cash our some good paying mutual funds to buy annuities. He had cancer, a heart condition and diabetis at the time. The annuities they sold him had a 10 year decreasing surrender charge, but you guessed it he passed away within a year and a half. In order to get that money out, we would have lost 10% of the principal that he put in.

They slipped up in a couple of places in the contract or that money would still be tied up. Of course the sales guys that sold the stuff are no where to be found, they made their commission and are history.

My advice is run as fast as you can. Roll your stuff into an IRA, you pick it, you control it, you can deal with a reputatble firm (Fidlelity, Vanguard ...), you can examine the fees involved ........

[daddyhoney]

Thanks for the feed back guys! Daddy Honey