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June 21, 2005
Variable Annuities Rarely Benefit the Investor
Dennis Houlihan, president of Houlihan Asset Management, LLC talks about the uses and abuses of annuities in another good article from NAPFA's (National Association of Personal Financial Advisors) May 2005 newsletter.
Sales of annuities, unfortunately, are driven by high sales commissions. They are inappropriate for IRA or 401(k) accounts because those accounts already are tax-deferred. There is no benefit to putting tax deferred investments into a tax-deferred annuity. Emphasis his - not mine.)
Therefore, if you have maximized all of your IRA and other tax-deferred retirement contributions, it might be worth speaking with your financial advisor about an annuity. But even in those circumstances, you need to look carefully at the marginal tax rate you face and the expenses of the annuity you are interested in purchasing.
Fixed annuities may make sense if you wish to generate steady monthly income and are concerned about preservation of principal. Variable annuities, on the other hand, rarely benefit the investor because they have high expenses and mediocre investment fund performance.
For a full discussion of why this practice of putting variable annuities inside IRAs borders on malpractice, listen to my interview with Gary Schatsky, chairman emeritus of the National Association of Personal Financial Advisors.
Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.
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Kim Snider is an author, speaker and host of Financial Success Coaching, Saturdays at noon, on KRLD Newsradio 1080, Dallas - Fort Worth. This blog is primarily devoted to empowering individual investors with information to help them be good stewards of their money. Above all, it is about achieving true financial success. Kim's book, How To Be the Family CFO: Four Simple Steps to Put Your Financial House in Order is in bookstores now. Order yours from Amazon or other fine booksellers today.
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