Handsoff Alternatives to Annuities?

Q: Hello Jeff. Thanks for the free financial advice offering in your December letter on annuities. It was a good article.

In March 2008 I will be 50 and plan on using my 401K to finance my retirement via 72t. My goal is to not have to manage my money nor worry about stock market swings. My Morgan Stanley adviser recommends an AXA Equitable variable-type annuity. In general I will have about $730,000 to invest. The principle will be managed/traded by him, costing me about 3.5% annually. If the principle goes up I make a profit. If it goes down I don't. However, the annuity is supposed to guarantee me a lifetime annual earnings of 6.5% even if the principle goes to $0.

Although expensive, the 6.5% seems very attractive. But I have not seen any other alternatives that would give me peace of mind. Either I manage my own mutual funds or I have a brokerage do so for me. I still bear the market risk.

What is your opinion ? Can you recommend anything ?


A: Thanks for asking. I think you'll be glad you did.

You are considering the VA not because of it's investment features, but because of the peace of mind associated with the 6.5% guarantee. In return for that you are paying 3.5% a year.

The problem is that you may not have been told the entire story. For instance, you may believe that 10 years down the road you can withdraw whatever is left of the compounded 6.5% guaranteed return even if the market collapsed.

You can't.

The only way that the 6.5% guarantee ever comes into play is as an income stream taken for life. So let's say you start that income stream at age 60 and at age 70 you need to cash out the annuity.

Guess what? You don't get what's left of the 6.5% guarantee less withdrawals, you get what's left of the ACTUAL performance less withdrawals.

The chances of you having that annuity for the rest of your life are probably about the same as you getting hit by lightening or winning the lottery. And all along the way you've sacrificed 3.5% a year in fees.

Yes, I do think there is a better way!

Here's a Special Report that will help you understand the financial services industry better, get an idea of whether or not you even need an advisor and, if so, what you should look for in one.

http://www.guardingyourwealth.com/SpecialReports/FinancialSelfDefense.ht m


Also, my weekly article last week was about these VA guarantees. You can read it here:

http://www.guardingyourwealth.com/blog.htm


Feel free to get in contact with me after you've read it and we can talk further.

Your posted comments on this and other questions are welcome.
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