Video: Variable Annuities
“At Chapman, LLC, our attorneys help investors who want out of their variable annuities, and usually for good reason: VAs are very expensive, they can tie up your money for years, and they limit investment choices.
Every year, investors put more than 200 billion dollars into variable annuities. Someone must love these investments. Guess who? The salesmen who earn huge commissions selling them! An 8% commission split with a firm still yields a 4% commission for the seller. That’s $10,000 on a $250,000 annuity – often with very little time or effort. Compare that with the minimal commission paid on a mutual fund or stock transaction!
That big commission is a powerful incentive! And for that reason, many brokers and investment advisors love selling variable annuities to their clients, especially to seniors sitting on a big nest egg. You’ll pay fees and costs the entire time you own your variable annuity. Mortality and expense risk fees, administrative fees, sub-account fees, and rider charges, just to name a few.
You may not even notice you’re paying these fees, because your salesman won’t talk much about them and they are only noted in the hundreds of pages of purposely confusing disclosures, but at the end of the day, they add up to big money. YOUR money!
Salesmen might hammer away at you about how a variable annuity offers a “death benefit” —which is just life insurance! Very, very expensive life insurance. If you need it, an inexpensive term life policy is a far better option.
Salesmen will also hammer home the point that you don’t have to pay taxes on the investment gains in a variable annuity. But, that feature may or may not be valuable to you. Also, if you’re funding a variable annuity with money from a retirement savings account, like an IRA, 401k, or pension, there’s NO tax advantage at all! You’re already getting the same tax-advantages in those qualified retirement plans.
Once someone invests in a variable annuity, they’re stuck in it for years. And they will pay and pay and pay. Sadly, they come to realize it’s not the deal that they thought it was.
Let’s say you’ve saved up $100,000 for retirement, and you’re being told it’s a good idea to put that into a variable annuity. The word “annuity” sounds …safe, right? Not so fast. Focus on the first word “variable”. Variable annuities are “variable” because the $100,000 you put in can increase OR decrease. It varies, just like the stock market.
It will be YOUR problem if the investments you choose turn your $100,000 investment into a $40,000 loss. And if an emergency comes up, and you want access to your money, you’ll have to pay the insurance company a big penalty called a “Contingent Deferred Surrender Charge”. And you usually have to wait 6 to 10 years until you can get your money out without a penalty!
These are the basics. Variable annuities require you to pay a lot of money to an insurance company and its salesman, in exchange for limited investment options and low growth. Whether, you are thinking about purchasing an annuity or are currently stuck in one, we are here to help. Let’s talk.”