When is a Tax Deferred Variable Annuity a good strategy?

Me and my spouse are 45 and 47 years old. We both max out our 401(k)s and IRAs. Our 401(k) contributions make us on track for retirement. We have good liquidity. We have $200,000 to invest and our financial advisor is recommending a Tax Deferred Variable Annuity. What is your recommended strategy?

Investing, Annuities
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December 2017

Most annuities are expensive due to high commissions and have long surrender penalties, and I am NOT a fan.  Did you know there are commission free annuities with no commissions and the ongoing fees are only .45% (45 basis points) annually with over 200 fund choices including professionally managed funds.  You never hear of those because the salesman doesn't get a commission and there is no surrender penalties.  You can put the money in one week and take it out the next without penalty.  Even then, I am still not a fan because when you want to take the money out, it is income first (100%) then return of principal.  I only use these for a like-kind exchanges when someone is trying to get out of an expensive annuity with gains when the surrender penalty is gone or minimal and they don't' want to pay the tax.  Usually, these are inherited from their parents.

And if you manage your after-tax investments properly, you will pay a lot less tax than you think.  Investing is about strategy not products.  If you are being told about an "indexed annuity" that provides "most of the gains but none of the losses," you will not get anywhere near the "non-guaranteed illustration."  You need to go by the "guaranteed illustration" and maybe add a percent or two.  I am currently helping two people unwind indexed annuities who are unhappy with what they thought would happen.  That's my two cents worth.

Hope this helps and best of luck, Dan Stewart CFA®

December 2017
December 2017
December 2017
December 2017