Truth about Annuities

Many clients buy annuities. I think it is fair to say that most clients do not understand the annuities and, in many cases, the annuity purchase was an inappropriate choice. In my opininion annuities are appropriate when:

1. The client wants to save more for retirement and already puts the maximum in his or her IRA/401k;

2. The client is in a high tax bracket and wants to reduce taxes;

3. The client won’t need the principal for quite a long time and the annuity makes up a small portion of the client’s total investments.

I have one client who paid no income tax, was 85 years old, had been retired for 20 years and purchased 4 annuities with all of her liquid assets; her only other assets, after the mass annuity purchases, were her condo and a checking account. The annuities were “unsuitable” for her, but were perfect for the annuity salesperson who netted at least $20,000 in commissions.

See the annuity truth web site for some interesting reading on annuities and whether one is right for you

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