Young Research & Publishing Inc.

Investment Research Since 1978

Disclosure

401(k) Nightmare: Part II

By

EJYour money growing tax-deferred is one of the best if not the best feature of a 401(k). When you choose to rollover to an IRA, your money is still growing tax-deferred. That’s it, say no more. That’s why it boggles my mind that retirees are tricked into putting their 401(k) money into variable annuities. The sales pitch from the broker is, one, you’ll get money sent to you every month and two, your investments will grow tax-free. Well they’re tax free anyway.

“It’s scary. There are days when I go to sleep and I can’t stop thinking about it,” says Maria Lew, a retiree from AT&T. She was advised by an broker at Royal Alliance Associates, owned by AIG, to rollover her 401(k) and invest in a combination of variable annuities and a closed-end real estate fund. I can’t imagine a more toxic mix for anyone, never mind a Ms. Lew. She used to have around $400,000. It’s now worth $100,000.

There’s plenty of blame to go around in the case of Maria Lew. The broker claims her withdrawal rate was too high, and that may very well be the case. But let’s not forget that brokers typically get between 6 to 7 percent commissions on the money invested in variable annuities and closed-end real estate funds. If anyone ever suggest to you that you should rollover your 401(k) into a variable annuity do not even listen to what they have to say.

If you have a retirement story to tell me email me at ejsmith@youngresearch.com.

The following two tabs change content below.

E.J. Smith

Editor-in-Chief
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com.