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Guarding Your Wealth for Senior Citizens
Annuities? Give Me a Break!
For millions of seniors suckered in, there’s little they can do
By Jeffrey D. Voudrie, CFP
 August
23, 2006 - Millions of seniors are sold equity-indexed and variable
annuities with promises of guaranteed returns with little or no risk.
And hardly a day goes by that I don’t hear from some frustrated investor
who finds him/herself trapped by one of these investments. Let me paint
a very clear picture of the dangers of these products and share some
pointers for those who have already bought one.
Annuities (especially equity-indexed annuities) are
the product of choice for insurance agents and other commission-based
advisors. Why? Because it’s an easy sale for the advisor, it pays a huge
up-front commission and it locks the client in for several years so
little attention has to be given the client or his/her money.
Annuities are an easy sale for an agent because, in
theory, it gives the investor everything they could ever dream of.
Agents tell you that equity-indexed annuities can give you the returns
of the stock market in the good times without any of the risk. In fact,
they will guarantee you will earn a minimum amount even if the market
crashes.
Those selling the latest variable annuities will
explain that you are guaranteed a 7% return! They’ll tell you there’s no
way to lose money.
Wow! What an investment!
That’s not all. If you invest today the insurance
company will even pay you a bonus! Some pay a bonus as high as 12%!
Think about that, Mr. Prospect. If you transfer all of your $1,000,000
retirement account into this whiz-bang annuity, you’ll get $120,000
right off the bat. Is that great or what?
Why, you’d be an idiot to not instantly throw every
dollar you have into one of these. Some agents out there are even
recommending you borrow money to put into these annuities!
Oh, if only it were so easy. But it’s not. Give
me a break!
First, what the agent or advisor isn’t telling you
is that he/she can make as much as 10% off of every dollar you put in.
If you transfer that $1,000,000 retirement fund into one of these, the
agent may make $100,000! Did the agent happen to mention that? Talk
about conflict of interest!
Second, do you really think that an insurance
company is going to give you a 12% bonus AND pay the agent a 10%
commission AND that the money isn’t somehow going to come out of your
pocket? Come on.
How can the insurance company pay out 22% right
up-front and still stay in business? I remember seeing a humorous sign
at a local business: “We rip-off the other guy and pass the savings on
to you!” Is that what you think the insurance company does?
Nor is there an insurance company on the planet
that can guarantee you will earn 7% a year on a variable annuity. None.
There’s always a catch. The problem is that it is
very hard to find. Unless you are a Philadelphia lawyer and can parse
every word of the contract you aren’t going to see it. Most advisors
don’t even see it!
For the millions of seniors suckered into these
products, there’s little they can do. They’ve contacted their State
Department of Insurance to little or no avail. They’ve pleaded with the
insurance company. Often, they are advised to go to an attorney. What
should you/they do in this situation? The options are very limited.
First, I recommend withdrawing the penalty-free
amount that is available each year and transferring that money somewhere
else. If the annuity is an IRA, you can still transfer that penalty-free
amount to another non-annuity IRA each year without tax consequences.
Second, you have to determine if it is better to
pay the surrender penalty or wait it out. Brad, who recently contacted
me, is choosing to pay the 15% penalty. An agent sold his 89-year old
father an annuity with a 15-year surrender period! What topped it off
was that the heirs will have to pay a surrender penalty to get the money
if his father dies before age 104!
It’s a very expensive education for those in this
situation. That’s why I speak out so strongly against these products.
There isn’t an easy way out. And remember, there’s always a catch. Don’t
take that chance. Stay away.
If you have a specific question or would like more
information give me a call toll-free at 1-877-827-1463 or you can also reach me by email at
jeff@guardingyourwealth.com.
About Guarding Your Wealth:
“Guarding Your Wealth” is a
nationally syndicated weekly personal finance column written by Jeffrey
D. Voudrie, CFP. Mr. Voudrie is the President of Legacy Planning Group,
a private wealth management firm that employs sophisticated proprietary
strategies designed to protect and grow its clients' investments. Please
visit his website,
www.guardingyourwealth.com to read past articles under the Guarding
Your Wealth Article Archive.
Guarding Your Wealth for Seniors are
a collection of columns by Voudrie that deal with issues of particular
interest to senior citizens.
Click here
for all columns.
In addition to being a nationally
syndicated columnist and Certified Financial Planning Practitioner, Mr.
Voudrie provides personal, private money management services to clients
nationwide.
Looking for an energetic expert who
is passionate about financial and wealth management? Mr. Voudrie is an
excellent speaker who will excite and inspire your audience. Mr. Voudrie
is available for a limited number of speaking engagements, television
appearances and radio talk shows. For booking information, email e-mail
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