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Variable Annuities?


"I have variable annuity that my parents purchased for me through their investment broker.  With all the publicity regarding annuities (good and bad), how do know I understand if this is a more beneficial investment for me, and that I should be putting dollars in this vehicle rather than an IRA or something else?"  

Thank you for your question.  At the risk of appearing negative, I am going to give you my honest opinion of variable annuities.  Variable annuities are insurance products that are sold to consumers and generous commissions are paid to whoever sells these investments/insurance.  For the most part, this is why they are strongly encouraged even to people who do not need them.  Most people would be better off in an IRA or another retirement plan.  Annuities generally have much higher fees associated with them to compensate the insurance company for whatever guarantees they are making as well as the commission that was paid to the salesperson.  All of these fees directly impact any return you can earn on your investments within the annuity.

With that being said, I would not recommend contributing any more to this investment.  Make sure that you are contributing to a retirement plan through your employer as well as making IRA contributions.  If you are already maxing out your contributions to each of these, then it may be beneficial to look into the possibility of contributing more to your variable annuity.

Again, I am only speaking in generalities.  I do not know your personal investment strategy, nor do I know the specifics of your variable annuity.  There isn’t a standard variable annuity out there so you can understand why I can’t give you definitive advice.  Variable annuities are complex products that should be evaluated by another professional due to tax implications and other fees such as surrender fees.  I would suggest that you have a fee-only financial planner dive into the specifics and determine whether it is worth keeping your annuity, whether you should sell it or perhaps you are fortunate enough to have one that offers some generous guarantees that would be worth keeping or even contributing more to.  A fee-only financial planner will not be selling you other investments and therefore should be unbiased with the advice that they provide you.

If you do not wish to consult with a financial planner, then the best advice I can give you is leave the variable annuity alone but do not make additional contributions to it.  I hope this is helpful and please keep your questions coming.