“Price only becomes an issue in the absence of value and the NUMBER 1 most important role for the advisor is not achieving high returns at a minimal cost. It’s protecting an investor from himself/herself. With all the fickle, emotional, irrational people out there, its difficult to put a price tag on that.”

Having worked in in financial services field as an advisor and in compliance (currently 75% of my time is spent with VAs), this statement sounds just like how new advisors are trained to think. While annuities are suitable in some situations, they are also not suitable in more situations.

Unfortunately, I see too often that a client has been put into these annuities for the wrong reasons, and few planners take the time to really look at the alternatives. Most clients blindly trust their advisors and unfortunately that can lead to a lapse in judgement when receiving a recommendation.

These are very complex products and need to be looked at carefully taking into account the clients total financial picture. I would recommend having the beneficiaries or family members present when discussing them with “older” clients.

On a last note, it is important to make sure that your financial goals are aligned with your advisors practice. Not all practices are created equal, and while your objectives may be to “achieve appropriate returns at a minimal cost”, the advisor still needs to make a living. Always ask your advisor to show why a transaction makes sense versus other alternatives, and ALWAYS find out what the advisors compensation will be. This way you have all the facts prior to your purchase.

You’ve not mentioned about stashing away in Foreign(eg swiss or dutch) banks which still give 6-7% safe returns and a dividend in some cases.
Also Gold. Us folks from India have horded away tons of Gold and most of us are laughing to the banks. With Social security dying slowly and medicare getting defunct, most of us Indians are well covered. We can start reverse exodus and can live like kings (with full help and serveants) on $3,000 a month in a great outdoor (year long great weather) community like Goa or Mysore upon retirement. Win Win for once.

As a CFP with other credentials, I do get irritated by many negative comments but then there are the good and the bad in every field. I get particularly vexed by the ‘fakers’ who try to fly under the radar of financial something or other! Even the early 40’s Sears Home Kits cost only $4k and afforded $2k mortgages at 2% so mortgages have been here a long time - and so have the abuses - nothing new here. Rotating CD’s by bank ‘advisors’ into annuities is particularly vexing and we do need to educate the general public more on fees — the old “there’s no free lunch” is understood by all but everyone still looks for the free-bee.

there are many interesting comments here. I am an independent investment rep and used to be associated with an insurance company, so I do know a fair amount about VAs and other annuities and many other investments. VAs absolutely have a place in a lot of people’s portfolios, but in this ladies case, I would agree it sounds like the rep was simply looking for commission to recomend such a high portion of her assets be invested in a VA. I don’t understand the negative comments about “financial advisors” being thieves and “out for themselves”. The industry is arguably the most regulated of any industry. JoSo said “if accountants or lawyers tried to get away with this they would be disbarred”. They do try to get away with sleazy stuff! Someone tell me what business or profession isn’t “out for themselves”. I do agree the fees are too high and absolutely should be more transparent. Also, there are sleazy Advisors, but there are sleazy “professionals” in all businesses. I wish I could just open a office and have people come see me for an hourly fee, but Investment reps must “sell” their products because people would just “put off” investmenting indefinately otherwise.

For someone with these assets, a Variable Annuity makes little sense. The comments about being riddled with fees/expenses is correct for the most part. In reality based on assets/age/income, it does not sound like a good buy on the surface. A guarantee that it will double in ten years hints to a 10 year surrender period as well. Bad business to tie 65% of assets up in that. I rarely felt comfortable selling a variable annuity. If a client has enough disposable income to max a 401(k)/SEP and IRA’s, then VUL may make more sense. One good low fee Variable Annuity I have seen is with TIAA-CREF. Low fees, but no frills or riders available. Only one fixed account with a fair interest rate, but no market participation with a guarantee either. Oh…and you have to work for a not-for-profit as well. Good luck on this one.

joso from arlington
you could not be more wrong
financial pros must continuously
educate themselves.
you must test for the many licenses
that allow you to work
using people with real credentials
might change your mind

Of course the financial planner is trying to swindle your Mom. you don’t really think he has her interests foremost, do you?

What was the book’s title,”Where are the Customers’ Yachts?”

VA’s are not right for everyone, but they can be a great tool as a part of one’s overall portfolio. Any posters who are too positive or too negative on this subject have an agenda. Plain and simple.

Clay, your preferred idea may work well for you. Like any investment their is risk to it. If there was no risk it would be 4% like government bonds. Preferreds have ratings just like bonds and you are must be buying lower rated/higer risk preferreds. There is no problem with that if you understand and can accept the risk.
This lady needs to reduce expenses and have greater income. She should not have taken out a mortgage at 5% or 6% to invest at a hopefully higher rate of return in any type of investment. That is way too risky for her.
VAs are usually deferred investments and the new and improved VAs have riders that guarantee a minimum payment while still having access to your account value. People usually do withdrawal type plans out of them. Yes the expenses are higher and yes that will reduce the return. They are for the person who wants to insure they have an income. The insurance companies do offer immediate annuities that have investment portfolios and they can come with death benefits. Fixed immediate annuities are not regulated by FINRA or the SEC so they do not disclose the true cost of owning them. There are always costs or risk/premium associated with everything.

Read my first rant below. This woman needs to get rid of the mortgage, save on expenses and invest in a bank account. Her concerned son needs to give her some money every month so she can turn on her lights. Could he still be mooching off of her?

For those of you complaining about reverse mortgages, who cares what the costs are or the future debt to equity ratio on that house. She needs money now! No, I do not sell reverse mortgages.

I am not against variable annuities, but like any other investment, they must be “tailored” to the needs of the investor. First of all, 60,000 dollars out of her 90,000 dollar savings is MUCH too high a percentage to be put in any variable annuity. This will get the seller a great fee, but will NOT benefit the buyer.

Some variable annuities are better than others. Many have high “exit fees” associated with them as well as excessive sales fees and processing fees. Generally, Fidelity Investments has the lowest fees for variable annuities (No, I’m not associated with them).

As to the answer of the stock market producing 7-11% growth over the long term, that is true. But that also depends on when you enter and exit the “financial stream” called the stock market.

Most experts recommend taking out no more than 4-5% of your holdings when you start retirement. This allows you to reduce the risk of taking out too much at the start…just in case there is a bear market at that time (which there is now).

The investor reported here does not have high income or savings. For her the variable annuity is a very poor investment.

I’d suggest a “packaged” system of retirement investments offered at low fees from a major investment house, where the percentage of risk is as follows:

1. At age 65: 60% in Stock funds, 20% in bond funds, and 20% in cash.

2. At age 70: 50% in Stock funds, 20% in bond funds, and 30% in cash.

3. At age 75: 45% in Stock funds, 20% in bond funds and 35% in cash.

4. At age 80: 35% in stock funds, 35% in bond funds and the rest in cash.

Keep it that way after age 80 through the end of life.

This investment program will not burden a low income investor with a lot of fees, since the investor can shop around to locate low fees.

There are no variable annunities for this investor, because she doesn’t earn enough to make it advantageous for her.

Withdrawals should start out at 4%/year if she is in good health. She can start out withdrawing 5% if she is in poor health and does not expect longevity. Her withdrawals will start out at 300/month and be raised by the yearly amount of inflation.

Constructed this way, she will probably never exhaust or outlive her income.

She should also qualify for senior low income housing in most states. If she owns her own home, she should get a reverse mortgage. Selling now in this bad market is not a great idea, unless the home is really way too big for her. If it is, she should attempt to sell it anyway, since a large home is too much of a drain for her.

I hope this helps…

sanjosemike

If I buy an immediate income annuity are those payments indexed for inflation? When I die, does the balance of the annuity pass to my heirs?

When I retire from my company, they will send papers on how I would like my pension payments. What did my company buy to provide me a pension?

If I had retired with 300,000 in my ira in 2000, invested those $ a broad array of index funds, what is my monte carlo rate of success? Does the sequense of returns have any bearing on my ability to maitain a consistant withdrawl rate from my ira?

Are Certificates of Deposit really bonds issued by my bank that have a federal insurance wrapper on them? What is the 10 year national average rate of return on a CD?

When will I die? can you gurantee that?

Will social security be around in 20 years? Will my benefits from social security be taxed as income?

How many asset classes are there, really?

If I don’t have a mortgage, do I really own the house? Do I still have to buy homeowners insurance on the dwelling?

Is a variable annuity the same as a fixed annuity, the same as an index annuity, the same as an income annuity, the same as a deferred annuity?

Is a VUL life insurance just term life with mutual funds?

Do mutual funds always go down and up in value? Can you gurantee that?

I take money from my ira, how is that taxed. I take money from my variable annuity, how is that taxed?

so many questions…what will I do?

Jim…keep in mind my calculations were for an immediate annuity with no survior benefits. If the payout is delayed or there is a death benefit…all the return fiqures will be higher!

Hey Jim

The preferred is NYSE listed FNM.PR.Q It’s a Fannie Mae preferred, but there are lots of financial preferreds in that ball park. They trade like stocks. I pay 7.99 per trade at E-Trade. The bonds skyrocketed today so I’m sure the rate is down a little but it was yielding over 7% two days ago. If the VA paid out 7K a year on a 100k investment (7%) the IRR would be 4.87% if it paid out for 25 years (0% for 15 years). Thats 100k out, 7k in for 25 years, zero balance back. The only caveat with the preferred is if Fannie Mae goes under (but so can Insurance Companies!)or rates move hard either way and the preferred will either be called or the price (and hence your principal) will go down. It’s already trading at a discount to par so if it’s called your yield to call will be even greater for the period you have held it…but you’ll have to find somewhere else to park your money. It’s a risk I’d take before I’d give up so much yield to an annuity. good luck!

One more thought on the reverse mortgage;

If you pay much more then 5% of the loan amount in Closing costs, which is the lower of the homes value or the local FHA loan limit and NOT the amount of the initial advance, then you are paying too much;
I clays case the initial advance was probly for $155,000 but the borrower could pile up to about $300,000 in principle and interest before the loan would stop paying him (notice I said stop paying him, but NOT making the borrower pay it back).
Remember, The loan amount maxes out at the appraised value but you still don’t have to pay it back as long as you are alive, and the value of the loan can increase until the max determined amount which means in declining markets its a great deal! And of course the interest is not deductible until the loan is paid off; There hasn’t been any interest PAID until the loan is paid off! If you do the line of credit option it has a Growth feature which takes into account your life expectancy at the time and the value of the house.

Remember your goal is to get money to live on and that is accomplished in two ways, by giving a line of credit-lumpsum-annutity and secondly getting rid of the house payment.

Clay, I am not saying you are incorrect, but I have some questions.
How are you selling the preferred? Is there a commision on the sale or are you charging a percent of assets.? If your are charging a fee, what is the percentage?
Finally, where are you getting your data for the Food For Thought comment?
What if the VA portfolio returned 7% net of expenses?

Annuities

Food for thought…roughly calculated on a IRR basis..a 6% guaranteed return on an annuity with no survivor benefits and zero returned principal amounts to a -1.3% return over 15 years, 1.8% over 20 years, 3.4% over 25 years and if you live another 30 years…4.3% correct me if I’m wrong but that doesn’t look so good when you break it down? The key here is…no return of principal.

Variable annuities comparison

You can get over 7% right now in a liquid FNM agency preferred with a high likelyhood of getting ALL your principal back. Different beast, but the point is…they are not giving away anything in a variable annuity that guarantees you 6% for 20 mabe 25 years (if your lucky)….with no return of principal. It’s smoke and mirrors with big up front fees.

“Immoral to sell a Variable annuity to a 63 year old” Are you kidding me. We just put 30% of my Dad’s assets into an annuity with a Guaranteed Living benefit. He is able to withdraw 6% of his original principal every year, with the ability to step up his income if his investments outperform 6%. Worst case scenerio if his acct value is depleted the insurance company is on the hook to continue his income for the rest of his life…How is that a bad thing? Also his annuity has only a three yr surrender period if we need the liquidity down the road. What would be immoral is allowing him to deplete his assets during his 30 yr retirement and not have a safty net for him.

Good point CFP!
Shop shop shop a reverse mortgage just as you would a forward mortgage; The fees brokers make vary and are comparable to a traditional forward mortgage; (In the interest of full disclosure, coutrywide pays non FHA brokers a half a point of the max loan amount where Indymac pays up to 2 pts.) It depends!! Shop, and I recomend only those endorsed by AARP and are the FHA type.

Also these aren’t for everybody; I have a particular set of aging clients with almost $1 mil in IRAs and other qualified plans, and even though they own the house free and clear, its not for them; they have enough income. I would recommend it for the type of client in the letter however, where the only source of income is fixed and there the resources seem so limited. I have talked to numerous clients where they own the house outright or have a huge equity in it, but can’t fill the gas tank or are eating top ramen and cat food.

Also, Its “borrowed” money so it doesn’t interfere with socail security and certain other benefits! There are no taxable income ramifications but there are others, so as usual consult with a qualified proffesional as what I say does not constitute tax advise.

The real crime is when the senior really does need more income and the kids talk them out of it for the sake of getting a bigger inheritance, or worse, have them pay one off with a forward mortgage saddling the senoirs with new house payments!!

I agree a VA should not hold all of the individuals retirement assets. I think part of an advisors job is to be sure that their clients are not afraid to retire. There is a 36% chance that at least one person in a marriage will live to age 95, at age 65! I never in my life would imagine living to 95. Most people as they save for retirement would never think that. I don’t think that people should be scared to live to long. I agree some VA’s out there are to good to be true, but the ones that can supply a simple guarenteed lifetime income I think are very appropriate to ensure at least some type of guaranteed income no matter how long they live. I am not so sure that an Immediate Annuity would be the best choice, that locks up the money longer than anything else, you invest in that and it is basically gone! 2 people, 3 meals per day, for 20 years at 5$ a meal=$219,000! Some type of guarantee would be nice so we can eat.

So Conrad, how much comission DO you get from each reverse mortgage that you “sell” someone?

Keep living the dream brother - debt free and loving it!!

“Doubling your money in 10 years amounts to an annualized 7.2% gain, a guarantee that borders on too-good-to-be-true in almost any market, especially today’s.”

And yet you hear most financial planners saying the market gives 8-9-10-12 percent return over the long haul.
Which one is it?

One last observation. Most planners still see reverse mortgages as a planning tool of last resort. Correct me if I’m wrong but the estimated closing costs for a (HECM) reverse mortgage of $155,000.00 (on a home valued at $500,000.00 and an owner of 65) is around $15,000.00!!! Almost 10% of the loan, and like interest…it can’t be deducted until the house is sold! The interest rate is also floating so if your going into a period of stagnant home prices and rising interest rates…it’s the double whammy! Good Luck All!!

The fee and expense problems with annuities run deep indeed. They will typically tell you what the administrative and mortality expense is but they won’t tell you that those fees are over and above what the funds that you are investing in charge. I called an insurance company with a client present to get a full understanding of the fees that she was incurring by being in their product. We asked 3 times within the conversation what the TOTAL fees were that she was paying and 3 times they quoted us the admin and mortality expense which added up to about 1.2%. Finally I asked them what the underlying expense ratio of the funds was that she was investing in. It was outrageous. By the time we took a weighted average of her fund expenses and added it to the admin and mortality expense she was paying over 3.5% per year to hold that annuity.

“If along the way we have to visit the parish credit union”

LOL…Martha I’m from Chi-Town and I think they must have put ATM’s in your church because the single biggest problem any legitimate planner has is dealing with people who live on debt. It’s epidemic in America. The essence of planning is to anticipate the worst, and live within your means. When you are living on hopes and dreams you’re easy prey for financial alchemists who sell high fee products that “look” good. This case is a prime example. There is no magic wand for a 63 year old with next to nothing! Any decent planner would tell her to keep working, prepare to downsize her living arrangements, buy a good no load mutual fund and ladder some fixed income. A variable annuity…HA HA. If you have dependents who rely on you and you need some insurance buy some term, otherwise…keep your premiums and invest them yourself.

Oh to romantacise about the past….

Actually regardless of what CFP may tell you, reverse mortgages were made pubicly availible in 1961, probably earlier on an individual basis.
These products and others will change as life expectancy continues to increase; 63 year olds survived in 1970 almost 15 years less according to the life expectancy tables then 65 year olds today will. Another stat to consider is that in 1970 the medien sales price of a home was aprox $23,000. Compare that to $221,000 or so today, home equity (aka the free and clear home) is now an asset that now needs to and can be utilized to maximize the income needed from an increasing life expectancy.

I too wish i had disposable income so I could save 25% of my income, 10% is more realistic.

For those who seem to have missed the point…all the legitimate financial planning tools are useless when you’ve lived beyond your means. You want to make a social statement be my quest, but when you live on hopes and dreams you are easy prey for unscrupulous “professionals” from all walks of life. Even the best of planners couldn’t work miracles for a 63 year old who wants to retire on next to nothing.

David,

You are a good son to be caring for your Mom.

Be sure to verify the financial planner’s regulatory record with FINRA (the self-regulatory agency for brokers). FINRA’s website is http://www.finra.org and the free service is “brokercheck.” Be sure to also check the firm’s record, too. Any customer complaints, disciplinary measures, or other regulatory actions, regardless of how they are resolved, are red flags.

Further, a 10-year annuity for a 63 year old senior citizen who it appears may need to use that $90,000 for some of her day-to-day expenses would be absolutely unsuitable for her.

The planner will tell her she can access her money at any time, but what he will gloss over is the early withdrawal penalties - typically 7 to 10% or so for the first year or two. Have your mother ask the financial planner why she would have to pay a penalty to get her money. You will need boots to wade through the BS he will spout. The truth is the penalty is used to offset the compensation paid to the financial planner and the company that created the annuity. When people bail out early, the company is left in a losing position. Hence, the need to charge the early withdrawal penalty.

If your mother needs to invest in mutual funds at her age, it is better to buy the appropriate funds outright rather than take on the cost and penalties of the variable annuity. The insurance wrapper on the annuity which is why variable annuities cost so much is useless.

My job is suing brokers and representing seniors. I have seen too many cases like this. They often end badly for the senior. Please, I don’t want your Mom’s business. Get her to someone reputable, charging a flat fee, and not hawking those damn variable annuities, ASAP.

A cautionary tale … My father invested in a variable annuity at age 63, with similar promises of return on principle. If he died before the 7 yr maturity date, I, as his beneficiary I was guaranteed to inherit *at minimum) the principle invested. He’s 70 now, and although the annuity did double during that time, it declined with the stock market and it’s value at maturity is now less than the principle he originally invested. A savings account would have been a better place to invest his money than the variable annuity, and would have saved him a lot of anxiety watching his investment value dimish.

Mr. Upgrave’s advice is prudent and thoughtful; I only wish my father had had such advice 7 years ago.

I’ve noticed many articles written by Mr. Updegrave that cast a negative light on the Financial Services industry.

This entire article can be summed up in two words, “Please Elaborate.” We’re given a tiny snapshot of someone’s problem and everyone, including Mr. Updegrave, is lining up to give solutions. Meanwhile, we don’t have nearly enough information to solve anything.

Mr. Updegrave, maybe you should work on figuring out why the Financial Services industry is in such high demand and why people are willing to pay what they pay instead of passing judgement every chance you get.

Price only becomes an issue in the absence of value and the NUMBER 1 most important role for the advisor is not achieving high returns at a minimal cost. It’s protecting an investor from himself/herself. With all the fickle, emotional, irrational people out there, its difficult to put a price tag on that.

There are alot of “There’s no way this is suitable”’s in here. There is not enough information provided. “Guaranteed” is not the word that can be used vor a VA, since there are no performance guarantees. Shame on the advisor. The bigger question is why is somebody of this age refi-ing into a 30 year mortgage that could have been paid off with the savings? THEN, I agree with the calls for a reversed mortgage to beef up the monthlys vs paying the monthlys. It is important to put the financial peace of mind of the mother first, and this would be the only way to truly guarantee a steady income with less liablities.

Dear Certified Financial Planner (R),

I read with interest your comments about the good old days when people purchased homes without a mortgage, cars without a loan and when grandparents survived without a reverse mortgage.

Perhaps Chicago is different than the rest of the country, but I really don’t know many people who could pay cash for their homes or cars. Problems do seem to arise for people who have completely overextended themselves — but not by the fact they received a car note or made house payments. As for the grandparents, you are correct, they did survive without a reverse mortgage. Of course, mine lived in my parents guest room for the last years of their lives.

You see Certified Financial Planner (R), not everyone has made six figures in their lives, went to college without student loans, had only 1.5 children or lived a life free of illness or injury. Most of us here in the real world are pretty common sense, aren’t trying to impress anyone with our mode of transportation or the number of bathrooms in our new construction. If along the way we have to visit the parish credit union, I think we’re still doing okay. Kudos to the financial professionals who help these people plan for their future, too.

“Oh for the days when you had pride in owning your own home (without a mortgage, and even taking a mortgage was frowned upon), living within your means, and saving up for the inevitable (e.g. retirement).

Even better than that. I want to be Japanese/Chinese (somewhere around there) - their culture is taught to automatically save at least 25% of their income for the future.

Could you imagine being sat in your great-grandfather’s family room telling him you took a loan out to pay for school, a car, and even put the movies last week on credit. The look of shame would hit you!

Reverse mortgage?! How come this didn’t even exist 30 years ago and old people still survived……..

Variable annuity - good for (possibly) part of a plan, not the whole thing!

There are swindlers in almost any profession. Always beware. If it sounds too good to be true it probably is. Always get a second or even 3rd opinion. I made 30.5% in my 401K this last year just by being careful what funds got my money. I forgot the advisers who I wonder might be getting kickbacks. I made absolutely no money in recent years listening to the advisers. These were good years too. Had I started my practice earlier in the year I would have made 45%. Who needs annuities? Just watch your 401K money and the available funds more carefully. If I made only 20% interest per year I will have 1.8 million dollars in 19 years. Most people will say that is unlikely but then again it was unlikely for me to make 30.5% last year. BTW the funds I invested in have steadily made over 30% every year for the last 5 years. You can check this out at Morningstar.com. Too good to be true? I make no money if you listen to me.

If she is currently comfortable living on $1,200 per month then in a few years she gets a pay raise from S.S. to $1,300 per month Not much granted, but an income raise. The VA isn’t terrible in that it will probably include and income rider that will guarantee a minimum amount of income from that investment. Yes there are fees and yes someone makes a commision. Oh my goodness! Heaven forbid someone gets paid. Don’t you think the people at Vanguard get paid? (Lots) How much do you think Walt makes? (Maybe lots)
A fixed annuity or a SPIA at 2% internal interest rate is riduculous! Why would anyone tie their money up at those rates? If you want to find out what the fees are in the program read the first few pages of the prospectus. It is all there.
Now the more interesting question is the amount she refinanced for and the amount she has to invest are eerily similar. At a 6% interest rate the new mortgage will cost her $540 per month in principal and interst. How is that getting paid? Why did she refinance? Another idea (without knowing all of the facts it may not make sense) would be to pay off this mortgage. Bank the $540 per month and be prepared to either move or take out a reverse mortgage.

My Bells and whistles would be going off big time if this were my Mom!

The “expert” here may be wrong in only one area of advise, and that is the reverse mortgage; In this case the widow is worse off by taking a regular “forward” mortgage that she has to make payments on; A good FHA endorsed reverse mortgage would have actually been a good bit of advise as you can annuitize the income or take in in a lump sum, but most importatly it gets rid of house payments for life and she will never owe more then the value of the house regardless of what happens to the value of the future. The writer says she took a 30 year mortgage (adding a monthly expense) which is ludicrius for someone at her age who is trying to create monthly income. Reverse mortgages like most other misunderstood financial products get a bad rap, but for seniors struggling to make ends meet it often makes sense; The AARP has an excellent DVD they send out for free to eduacate people of the advantages andto see if the product fits.

Thank you for such an enlightening question David. You’re to be congratulated that your mother kept you “in the loop” when it came to her financial planning.

When my husband’s parents became ill (quite suddenly following a stroke and a serious fall) and were in need of assistance, we had to sort through their investments for assisted-living care costs. I only wish we had sat down with them to discuss these matters before it came to that point. Some of the fees they paid, to put it mildly, were sinful. Maybe your question will inspire other families to have that conversation while their parents still have a lot of life to live.

as an independent adviser who gets, paid by commisssion, a fee or both, I beleive that annuities are not the problem, bad sales practice is the problem. There may be a very good reason for the use of the annuity in this instance and the writer should have the advisor meet with him and his mother for a full expalnation. If he cannot justify the product choice or the investment plan then mom should fire the advisor and get a new one.

Financial advisors go through more eductional requirements than a Real Estaste agent, Chiropractor, plumner, lectrician, teacher….Jst to name a few.
You should always chek the Advisors licensing, experience and eduction.
Annuities are very expensive for some people, but do have there place in retirement planning. NOT the whole PLAN!

I’d bet it’s most likely the adviser never did “guarantee” the annuity would double, and that was just a misinterpretation on Mom’s part. That’s one of the hazards of the job, no matter how patiently and correctly you explain stuff people still misunderstand and misremember what you say.

That said, I put very few clients into annuities myself when I was an adviser, and I very much doubt I’d put so much if any of this lady’s money into a variable annuity in this situation, not at all. It is a fact that commission-based advisers make good money up front from annuities, and that does cloud the judgment of many.

This is the problem w/ the entire financial advising industry. There is no real, significant educational requirement to be a financial advisor, nor do they have any fiduciary responsibility to their client(s). Many, if not most of them, are only in it for themselves. If accountants or lawyers tried to get away with this nonsense, they would be disbarred. Plus, this industry is more important b/c our entire financial futures are riding on it. Unfortunately, this industry is completely filled with idiots, incompetents, swindlers and goons, and Congress and our states refuse to do any thing to control them and make them accountable to their clients. I’m not saying they’re all bad, but many of them are. Most people don’t realize that just b/c these people wear suits doesn’t mean they are true PROFESSIONALS in the real sense of the word. Your mom (and any person who’s making a decision w/ his/her money) needs to make sure that she understands completely 100% what she is doing w/ her money. If she doesn’t, she absolutely should not sign. It sounds like this so-called advisor is only looking out for himself, not for you mom. Don’t let her fall for his nonsense.

I agree with James. Variable annuities can offer more “downside” guarantee. I would that, if the advisor is positioning this as an income supplement to Social Security, then it should be suitable. the only part that would concern me would be the amount of the clients liquidity being tied up in a long-term investment. 50% of her liquid net-worth is borderline, if that is all she has but she may have a substantial income gap that may need to be filled. An immediate annuity may no be suitable if she is not looking for income immediately and wants to still participate in the market which, at her age, she should still want some market exposure to hedge inflation.

The “financial planner” referenced in this article is worse than the sleaziest used car salesman you could find. The word “guaranteed” in the context of any investment or security should immediately make any investor or financial planning client run the other direction. No investment is guaranteed, and especially a variable annuity. I hope that David from Denver thoroughly investigates this “planner’s” background and submits a formal complaint to FINRA and the Colorado Securities Commissioner. We have to root out the thieves like this person from the securities industry.

And, yes, I wholeheartedly agree that it is absolutely immoral to put 2/3 of a 63 year old retired person’s life savings into a variable annuity product. I don’t care what the contract says. There is no way that a variable annuity product could be a suitable recommendation for a person in that situation.

Before retiring, I looked into an annuity with a major company. When I couldn’t figure out what the expenses were going to be even after asking pointed questions, I left their office. The person I had talked with and others continued to call me asking for a home appointment. I had to e-mail the corporate office to demand that they remove me from their call list. I haven’t heard from them for three months, and it better stay that way. If fees for anything are confusing and the product sounds too good to be true run the other way.

How do you think this 63 year old would feel now after she put her money in the Wellington Fund back in 2001? We are not fools Walt.

My question is why social security is being seriously considered as a genuine source of income. Is it in the best interest of the client to assume that our government will be able to continue making this payments for the rest of their lives?

Bill…to say that it is immoral to sell a variable annuity to a 63 year old soo to be retiree is absolutely ridiculous…While there are some terrible annuities out there (EIA’s) and some are abused, there are situations when a VA is very practical and beneficial. To say that it’s immoral to sell a VA to a 63 year old no matter what the situation just suggests that you don’t have a full understanding of all the products. You should check the average rates on a fixed annuity and maybe then you’d think differently.

Maybe Walt can explain how a 63 year old is an “older person?” If the woman was 83, then he might have a point.

So James, how about a little disclosure. Do you benefit directly or indirectly in the sale of annuties.

I will go farther than the author. It is immoral to sell a variable annuitity to a 63 year old soon to be retired person.

Now a fixed annutity, that is differnt. It can be useful for many retired people. However, generally it is more advantagous to do so after 65.

Of course, the commisions are far smaller on fixed annuities and the thief (pardon me, financial advisor) won’t be able to afford that new Mercedes on the commission.

As you can tell, I don’t have much of an opinion on this

Well written, helpful article. Unfortunately too many sales people prey on seniors these days. One needs to proceed with caution, and this article points out land mines to avoid.

This article is spot on! If $90,000 is the entire sum of your mom’s savings and someone is telling her to lock ALL of it into any one investment, RUN THE OTHER WAY! By the way James, I do understand annuities, I work with them every day and they are NOT RIGHT FOR EVERYONE! Any ethical, properly licensed professional will say the same thing.

Great article! Until the sales people in financial services start truly disclosing their fees, it is crucuial for the buyer to beware. Getting paid for the product you sell is fair, using misleading and scare tactics to fleece unsuspecting buyers is shameful.

Annuities are the investment vehicle of last resort. When you fully fund every avenue of 401Ks and IRA for both you and the wife. THEN, in very specific cases do annuities make sense as a catch up vehicle for someone who is underfunded in retirement savings.

Any other use usually benefits the broker more than the client. I know because I was a broker and encouraged to sell them. Ive seen brokers put them inside IRA’s!!!

All they really are is a way for Insurance companies to get a cut of the investment business more. This is also similar to whole life insurance which is generally a shell game too. Buy term. Insurance companies are for insurance, not investment.

The example in this article is an example of abuse and I do not feel is a prudent choice for this woman. Lets call it what it is, the broker is making a nice fat commision on this women. So I would walk or in fact run out of this “financial advisors” office.

Wow, did you read the article James? Walter clearly says that he positively views immediate annuities when used in certain situations. He says basically “get informed” before making a decision when someone says the word “guarantee” which should be a red flag. There is fine print with any service provided, in any industry.
A planner I would recommend someone like this lady visit is someone who clearly lays out the risks, costs, and positives/negatives of any investment plan. That planner should be able to proficiently explain the benefits of creating and adhering to a sound investment plan but also speak in reality. Yes, it will cost money–but that Flat Panel TV costs money too and I bet more folks have one of those than have sat down with a financial planner.
Also James how do you know what the financial planner will recommend? I sure can’t give the lady a recommendation without looking at her entire situation.
James you also lump all financial planners into a bucket without any regard to education, experience or background.

Thanks for your comment, James. Did you read the article?

“I don’t say all this because I am “anti-annuity.” On the contrary, I think in many cases it can make sense for retirees to devote a portion of their savings to a certain type of annuity - an immediate annuity, a.k.a an income or payout annuity - while leaving the rest in conventional investments like stock and bond mutual funds. The idea is that the annuity can offer a guaranteed lifetime income, while the funds can provide liquidity as well as long-term growth.”

James, I wonder if you and I read the same article….. what I read is “sic.. to be careful with variable annuities, and generally speaking, immediate annuities may be more beneficial”

This article is obviously bias and the writer does not understanding the benefits of annuities. They are very beneficial if done properly. He recommends going to see a financial planner who works for a flat rate, which is good. But what he fails to state is after the customer meets with the financial planner the planner will almost certainly recommend an annuity of some sort. Annuities are a good investment product, this article is used to scare prospects into meeting a financial planner, who in turn, will recommend the same product an adviser will at their local bank.