Should I invest my inherited IRA in a variable annuity?

I inherited my husbands IRA worth $232,000. Should I invest it in a variable annuity that will charge me 1.65% per year. They say I will have complete access to it at anytime with no surrender charges. Is this a good way to go? They are going to put $45,000 in cash earning 1.0%. The remainder will be invested in conservative mutual funds. They claim I will not have to pay more fees for the mutual funds. Is this a good idea?

Annuities, IRAs
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June 2016

Hello,

First of all, I’m sorry for your loss. It’s great that your husband had saved and was able to leave you a legacy. Thus, it’s important to take care of this inheritance.

Ideally, I always tell widows and widowers not to make any financial decisions for at least 6 month, or until they are ready and able to concentrate and make the sound decisions. In your case, if $232k is your only financial resources, I would make sure to talk a reputable CFP® to see if you need to pay off all debts before proceed to any investing. For example, if you have 23% interest on your credit card debts, unless an investment can generate an equal or better return than 23%, I would pay off the debts first. Secondly, annuity is usually used to make up the difference between your retirement income (pension, social security income, etc) and retirement expenses. By itself, annuity is not good or bad product; it’s just a tool.  When used properly, an annuity that provides lifetime income can be beneficial, thus gives you a peace of mind. When used poorly, it has so much detrimental effects that you may never recoup the cost. Therefore, a reputable CFP® who knows your financial situation can clearly tell you if you need any annuity in the first place. If you do, she/he should be able to explain how many benefits you need and what kind of tradeoff you have to make for the benefits. Furthermore, he/she should also show you a product-comparison so that you can make an informed decision.

Best luck to you!

June 2016
June 2016
June 2016