|
October 1,
2005 (Smartmoney.com)
- NOW
THAT
we've stuffed
you with reasons
not to buy variable
annuities, let
us give you
a few examples
of instances
where annuities
actually make
sense.
Sleepless
Retiree
If you're retired
and barely have
enough money
to meet your
annual expenses
or fear that
you will outlive
your capital,
then consider
purchasing an
immediate annuity.
You'll get a
guaranteed income
stream, even
if you outlive
your annuity's
principal. Of
course, if you
die tomorrow,
the remaining
balance of the
annuity goes
to the insurance
company, explains
annuity analyst
Patrick Reinkemeyer
of Morningstar.
For some, that
risk is worth
the price. "You're
buying peace
of mind,"
says Mark Mackey,
president and
CEO of the National
Association
for Variable
Annuities. "No
one would question
you if you bought
homeowners insurance
to protect against
a fire, even
though a fire
is unlikely."
Young
Trader Saving
for Retirement
If you are under
40, trade mutual
funds several
times a year
and have maxed
out your 401(k)
and IRA, a variable
annuity might
make sense.
Why under 40?
You may need
more than 20
years for the
benefit of an
annuity's tax-deferral
to exceed the
benefit of the
15% long-term
capital gains
rate on profits
from selling
your mutual
funds. (Remember,
annuities are
taxed at ordinary
income tax rates,
which run as
high as 35%
at the federal
level.) Of course,
the lower your
tax bracket
in retirement,
the better the
case for annuities
becomes.
Why a trader?
Because if you
did that kind
of trading in
a taxable account,
you'd get hit
with short-term
capital gains
taxes at rates
of up to 35%.
In an annuity,
your money can
continue to
compound until
you withdraw
it. "Switching
and asset rebalancing
are one of the
great advantages
of a variable
annuity,"
notes Reinkemeyer.
"Most annuities
allow you to
switch investments
up to 12 times
a year for free,
and after that
it's about $10
a switch."
Of course, if
this description
fits you, make
sure you pick
an annuity with
plenty of attractive
subaccounts.
Or, better yet,
one with no
surrender charges.
Otherwise, you
are likely to
be hit with
a fee as high
as 9% if you
try to move
your money to
another annuity
provider (a
so-called 1035
transfer) before
your surrender
charges expire.
Malpractice
Target
Other suitable
annuity investors:
potential targets
of lawsuits.
"Assets
in life insurance
policies and
annuities are
credit protected
in many states,"
says financial
planner Ben
Baldwin. "As
long as the
money wasn't
put there in
defraud of creditors,
it's safe from
malpractice
suits. Anyone
in the personal
services business
today who's
likely to be
sued —
doctors, lawyers,
CPAs, architects,
financial planners
— might
want to take
a second look
at these products."
Whole
Life Loser
If you own an
underwater universal
life insurance
policy, you
may want to
transfer the
assets to an
annuity. Typically,
life insurance
losses are not
tax deductible.
But, if you
move the money
into an annuity,
the losses can
be used to offset
the annuity's
gains.
Source: Smartmoney.com
< Back
to News
|
