Home > Resources > Annuity > Annuity Investments > Should I Consider An Annuity?

Should I Consider An Annuity?

Should I Consider An Annuity?

Should I Consider An Annuity?

By TONY MONTANARI, CIMA® I | FREE CONSULTATION

A common question that many of my clients ask me is Should I consider an annuity?

 

Are you being told everything there is to know about Variable Annuities?

 

An annuity could be a solution for a portion of your portfolio depending on your financial situation, investment mentality, and how you tend to react to volatility during periods of stock market declines.

 

Variable annuities can give you some exposure to the upside of the stock market along with a future income guarantee and maybe a death benefit guarantee, if you sign up for it. However, these benefits/guarantees come with a hefty price.

 

Depending on the specific annuity, once you add up all the fees associated with the contract, you could see total annual fees as high as 3.5-4%! That is about double the amount of fees an investor would pay working with a financial advisor who will professionally manage a portfolio of Exchange Traded Funds (ETFs) and mutual funds. An extra 2% per year in fees, compounded for 10, 20, or 30 years can really be a drag on the portfolio performance, especially for a benefit that you may never need.

 

Another important limitation with most annuities is the lack of investment options and portfolio customization. Most insurance companies will control the asset allocation of the underlying portfolio and limit your mutual fund choices. Typically, this means that most variable annuities will allow the maximum exposure to stock-based mutual funds to be approximately 60-70% of the portfolio allocation.

 

I do believe however, that certain clients can benefit from the features of a variable annuity with a lifetime income benefit. Many financial advisors present annuities as a safer way to be in the stock market, but I tend to believe that annuities should be viewed as an alternative to bonds instead of stocks, especially in todays low interest rate environment. Either way, if a financial advisor is only talking to you about an annuity as a solution for your financial planning and portfolio management needs, I would be skeptical. I think it is very important to look at your options side-by-side and discuss the long-term benefits and costs of owning an annuity versus a portfolio of ETFs and mutual funds.

 

Remember, whether an annuity is the right choice for you depends on a number of factors. At ACM Wealth Management, we customize solutions based on your individual goals, objectives and tolerance of market volatility.

 

TONY MONTANARI , CIMA® is a financial advisor located in Charlotte, NC . TONY has over 18 years experience working with local businesses and investors. More information about TONY can be found at http://www.ACM-Wealth.com .

This article was written by and presents the views of our contributing advisor, not the WiserAdvisor editorial staff.

Only if You Care to

Protect Your Nest Egg

And potentially grow it

You will research and find the right advisor
  • Experience
  • Past Results
  • Fee Schedules
  • Investment Style
  • Professionalism
  • Credentials

You may also be interested in...

The Appeal of Indexed Annuities

The Appeal of Indexed Annuities

The upside potential and downside protection of indexed annuities continue to appeal to investors, and in 2004 fueled sales that topped $23.4 billion _ a 67 percent increase over 20031 Why the recent rush to indexed annuities? It may be a combination of factors. Investors who are concerned... more

Annuities: Stay Single or Go Steady?

Annuities: Stay Single or Go Steady?

Some people like to jump in with both feet. Others prefer to ease in slowly. Regardless of which way you like to go, there may be an annuity program that suits you. Annuities continue to be a popular way to accumulate supplemental retirement funds. Americans have more than a trillion dollars in... more

Equity Index Annuities

Equity Index Annuities

As you well know your investments or savings cannot simply stand still in very low yielding vehicles. Sooner or later you begin to eat away at your principal and thus, there is less available to sustain your lifestyle. In most cases, people will likely live much longer after retirement than past... more

Annuities: A Retirement Planning Tool to Consider

Annuities: A Retirement Planning Tool to Consider

When it comes to deferring taxes, people normally think of retirement accounts like 401(k)s, Keoghs, SEPs, and IRAs. But there's another way to defer taxes on your investment earnings until you reach retirement age: by purchasing an annuity. What is an Annuity? An annuity is a contract between a... more

Traditional Financial Planning Misconceptions

Traditional Financial Planning Misconceptions

What if everything you had always been told about retirement planning, investing and mortgages were not true, when would you want to know it? I suspect you d say- RIGHT NOW! Let s start with a little true or false test of your preconceived notions of these subjects. Answer the following true... more

What is an annuity, when is it appropriate, and why should you buy one
What is an annuity, when is it appropriate, and why should you buy one

Concept - Key Estate Planning documents you need

Learn more about annuities and how and when they may be a good option for retirement.
Learn more about annuities and how and when they may be a good option for retirement.

Concept - Trust Basics

Additional Annuity Resources