I suspect that not many investors would own variable annuities if they knew more about them. But learning the ins and outs of variable annuities is like watching sausage being made. Don’t bother. You don’t want to get sick.
Believe me when I tell you there are much more suitable investments for you to own. Yes, I know the arguments that are made for owning variable annuities in substantial portfolios, but come on, they’re like numbers 98 and 99 on a list of 100 things to do first with your money.
A variable annuity is a salesman’s dream. The commission is hefty, and the sales pitch of tax-deferred growth is easy street. The salesman has been paid with your money and is long gone while you’re waiting for gains that may never come.
Remember, nothing is free. You pay for it all. Including the pleasure of getting your money back once buyer’s remorse kicks in. What if you need your money today? Don’t worry—you’ll get your money back, I hope, but that’s after the insurance company hits you with a surrender fee.
What’s hard to believe is how variable annuities are being pushed as a suitable investment in tax-deferred accounts such as IRAs, rollover IRAs, defined-contribution plans like 401(k)s, profit sharing, and 403(b)s. Even the government is pushing for them in defined-contribution plans. That’s reason enough right there to run. Give me a break.
Variable annuities grow tax deferred, if they grow at all. So why would you put one in an already tax-deferred account like an IRA? You wouldn’t. It’s one of the dumbest investment ideas I’ve ever heard. It’s like paying for a benefit and not using it. Wait a second—isn’t that what the insurance industry does anyway?
If you’re being pushed into a variable annuity in your retirement plan, you should rethink your participation in the plan. You should request at the very least a self-direct option. Or if you can roll it over without penalties, then do that. Roll it to Fidelity or Vanguard.
If you’re stuck in a variable annuity and can’t get out without getting hit by surrender fees, hold your nose and wait it out. Then get your money over to Fidelity or Vanguard. At least that way you’ll know why you don’t want to own variable annuities ever again.
