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VARIABLE ANNUITIES - WHO BENEFITS?

August 24, 2007

From the Financeispersonal.com blog on variable annuities:

Are there any advantages? It turns out there are a few. The biggest advantage is that you can invest money tax deferred with out yearly limits much in the way you can with 401k or IRAs. In all cases it makes sense to shelter your money with a 401k first or an IRA before you consider an annuity, because you can invest in mutual funds just like you can with your annuity, but you can avoid all of the fees. The second advantage is that you are guaranteed to not lose any money, regardless of what happens to the stock market. This might be something which attracts those who have a very low risk tolerance.

Variable annuities also have numerous disadvantages. They generate very high commissions for the broker, so they are often pushed on people who really should not have them. They also have much higher fee structures than other investments, such as mutual funds. Usually these fees can be upwards of 2% or 4% of your annual return. On top of that, there are generally huge surrender fees in annuities which average to be about 7%.

Read the whole thing.

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