Fixed Index Deferred Annuity
Are there any benefits to transferring one of my IRAs to a fixed index deferred annuity? I am 44 years old. The annuity has a payment for life option. My insurance agent believes this is a good way to diversify. My ML broker disagrees. Thoughts?
Thank you.
Permalink Submitted by Al Fry on Wed, 2008-10-15 21:06
This is just my personal feelings, I would only buy a fixed annuity from someone that was a registered rep that could also recommend variable annuities.
Permalink Submitted by Leslie Knudsen on Wed, 2008-10-22 14:11
You mentioned that your advisor suggested you put ‘”one” of your IRA’s in an index annuity. If you are looking for a method of systematically retaining the gains that the market offers with 100% safety to your principal and minimal fees than this is a good alternative to a variable annuity. Keep in mind that the index annuity does not give you all the gains of the market………and either does a variable annuity when you calculate fees etc. Having seen many variable annuity statements I believe they work well in up markets and lose money in down ones. Brokers will tell you however that there are guarantees that they will do this and that. By “adding” those guarantees you wind up with fees that generally run in the neighborhood of 2-3% a year which does not include the sub-account fees. Growth in the index annuity is normally between 5-8% but have seen returns as high as 30% when the market is doing it’s best. There may be a year or two that you post a zero gain, but compared to losing 10-50% zero will be your hero. If you add an income option the cost is about .40% which is normally lower than a comparable option in a variable annuity. There is an index annuity income option now that will guarantee to double your money (for income purposes only) in ten years with a 7.2%return every year. As guarantees go, there are few these days.
I would agree that you should explore both options before making up your mind, however I do not necessarily agree that the same person offer you both options. In 31 years as “an agent” my objective was always to protect my client from risk. The business of insurance is the transfer of risk from the client to the insurance company and that is why it is called insurance. Brokers and agents are like oil and water.
If you have more than one IRA you may want to try one of each and compare every year in the good and bad markets. At the end of five years you should have a pretty good idea which one performed better and at your age some risk is not a bad thing……..even though I am not a broker!!!!
Some index products also have bonuses of 10% to give you a jump start.
Best of luck!!!!!