Variable Annuities Exposed

Many people hear the word annuity and are immediately "turned off" and when asked why they usually give a reason like "My brother-in-law has one and doesn't like it" or "My next door neighbor says that they are bad". There are many varied reactions to the term. Now you may be thinking to yourself that I am endorsing annuities while reading this. I believe that all investments have the appropriate use depending on the goals of the investor. All annuities have common traits these are traits like a guarantee of some sort, a death benefit of some sort and a tax deferral. I explain the different types on my website here...

Variable annuities however are really securities in that the principal value can fluctuate based on the market value of the securities inside the separate account of the product. This type of annuity usually has an income feature that attracts most investors however the principle value usually becomes eroded with fees and charges and market volatility. I have seen many clients who come to get my advice after buying one of these investments and sorry because of poor market returns and fees eroding the principal so much that the value is only in its death benefit and income stream.

When mutual funds originally were conceived variable annuities were introduced as a hybrid insurance and investment product. Since then even mutual funds have been exposed as an expensive way to build diversification in a portfolio.

I see no reason to use a variable annuity today especially since there are so many alternatives available to investors with a solid guarantee and a better return.

If you own a variable annuity and want to see if it is worthwhile for you to exchange out of it. You may be able to do an exchange without a tax consequence into something more appropriate for your investing needs. You can use the IRS rule 1035 exchange rule to transfer your funds into another investment or a more appropriate annuity. Many of my clients have bettered their investment position by exchanging out of their variable annuities without any tax consequence. It is a fairly common procedure to move out of these products. If you want to learn more about getting out of your variable annuity you can call my office at 610-695-8748 or send an email to roy@yourwealthadvocate.com. There is more information about this on my website http://www.yourwealthadvocate.com