Facebook's IPO Debacle, Day 3: Un-Friended and Dis-Liked on Wall…
Former Olympic Rower Turned to Minimalism to Pay Down $82,000 in Debt
This post is part of a series where retirement expert Dan Solin offers simple answers to the ten toughest retirement questions. See all 10.
Q: Should I invest in annuities in my retirement plan?
A: Annuities within a retirement plan are a poor choice.
The big selling point of annuities is that they provide for a tax deferral. However, all investments within retirement plans are already tax deferred. You are paying a premium for a benefit you already have.
Annuities are high commission, high cost, investments, laden with excessive fees and expenses. They usually have stiff penalties for early withdrawals. These issues make annuities an unsuitable investment for most investors even outside of a retirement plan.
The much hyped "death benefit" does not change my opinion. It only kicks in if the value of your investments is less that the amount invested. How likely is it that this will be the case over any extended period of time?
Remember, an annuity within or outside a retirement plan will subject you to tax at ordinary income rates when you withdraw funds from it.
Giving up the historically more favorable capital gains rate is not something that should be done lightly. For the majority of investors, annuities make no sense.
You would be far better off in a globally diversified portfolio of low cost index funds or in a Target Retirement Fund.
Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, June 24, 2008)
Goldman Earnings Sink After Buffett Dividend
Johnson & Johnson's Income Falls 23%
Burberry Shares Leap on Sales Update
Reader Comments (Page 2 of 2)
9-23-2008 @ 5:23PM
Jules said...
If your going to talk about annuities you need to be specific. You are putting down annuites as a general. But your topic is specific to Variable annuities. Which do have fees and expenses associated with it. Many also have life insurance attachted to it which the consumer is paying for as well. Fix and fixed indexed annuities typically do not have those fees and expenses associated with them. If you are going to present yourself as a professional then you should make sure you know what you are talking about and disclose all the information.
10-02-2008 @ 8:54AM
Howard said...
are fixed annuities a good investment for someone who is retired .with a pension and social security income
10-04-2008 @ 11:47AM
Al said...
I agree with Jules. I think you need to more specific on the type of Annuities you are against. If it is all Annuities, please state so. My take on all this depends on where where you are in life (health, age,wealth, etc.). The average person near or at retirement age needs know one basic thing.. Will my money last the next 20 -30 years? A fixed annuity makes sense to me at this time. The market is crazy now, inflation is here and unemployment is high.. I don't think anyone wants to put their retirement money at risk presently.