Why there are better options than Annuities for your Retirement income

Many stockbrokers and insurance salespeople push annuities as a sole or primary investment vehicle for your retirement plan. And why wouldn't they, they get well paid on the commissions related to the product. Before you lock yourself into an annuity contract that you will be tied to for the rest of your life ask yourself a number of questions:

1) What about inflation? As inflation returns to our economy your fixed payment from your annuity will stay the same as your living expenses increase. This could result in you outliving your assets.

2) What are all the true costs of the annuity? Annuities can be loaded with surrender fees, mortality fees, and, upfront sales commissions. How do these affect your true rate of return?

3) What happens if your plans change and you need your money? Cashing out of an annuity will likely result in you owing taxes as well as significant fees.

4) What happens to your money if the insurance company defaults? Did you know that over 14 insurance companies have failed in the U.S. since 2008? When an insurance company fails, the State regulators step in and the terms of the policy will be subject to the coverage limitations of the State, not what was promised you originally.

5) How do large pension plans invest to provide future income for their pensioners? Major pension funds diversify their assets in many different areas (stocks, bonds, real estate, etc.) because they realize they can't predict which asset will perform best in the future. Why not do the same?

One effective use for a no-load annuity is in a portfolio of assets to provide a baseline of guaranteed income for people 70 or older. Companies such as Vanguard and TIAA-CREF as well as fee-only fiduciary advisors offer low cost competitive yielding annuities. Currently, due to low interest rates I recommend waiting for rates to go up versus locking in today's historically low rates. To discuss your situation please feel free to contact us at : tim@troseassoc.com or 612.314.5629 today.