Equipped With Well Informed Questions

Q. I read your "Guaranteed Minimum Income Benefit" piece tonight. It was a real eye-opener, because I did not realize that the GMIB is actually a variable annuity fund.

A representative of a large insurance company pitched a GMIB to me today and, of course, he made it sound really good. However, I thought the cost was high: 1.2%--and he was unable to tell me where the money to pay that cost would be coming from--the principle or the guaranteed five percent increase in value.

I'm also not sure that such an investment would be correct for me at my age--I am 66. I did feel that the pitch described something which was too good to be true. (I look askance at insurance company offering thanks to a policy I bought some time ago-a policy which has absolutely failed to live up to the promises made for it by the agent involved in its selling.) Thanks to your article, i feel I will be able to ask some well-informed questions the next time I meet with this agent.

Thanks for the insight!

A. You are more than welcome. People like you are the reason I do what I do.

Your comments are greatly appreciated.

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Will Real Estate Buyout Costs Affect Capital Gains?

Q. I recently bought out the other owner if the house I live in. It was JTWROS and now I am sole owner. When I sell? Can I add the amount paid for buyout to the basis when calculating Capital Gains? Thank you.

A. Yes you can. Make sure, as well, that there is a new deed that is in your name only...

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Negative About Annuities?

Q. I read that great article in the New York Times Sunday by Roger Lowenstien about Pensions. He seems to come to different conclusions from you. Roger seems very strong about buying an annuity. You seem very negative about annuities.

I am retiring with a 401k and deferred comp and the idea of locking in lifetime income sounds good. I have looked at a few annuities already but I am reluctant after reading your stuff. What am i missing?

A. I haven't read his article, but there are four basic types of annuities--fixed, equity-indexed, variable and immediate.

It is not that I am against all annuities. I am absolutely against equity-indexed annuities and can't think of a single situation in which they should be used.

I am strongly opposed to variable annuities because I know that they are recommended for their commission, not the supposed benefits. There's no reason to use a variable annuity for IRA money. Some say you should because of the death benefits, lifetime income or these 'new' GMIB's. I don't. Virutally no one used a VA for the lifetime income. Hardly anyone will ever own one long enough to use the other benefits and you've given up performance to high fees along the way.

Traditional fixed annuities can be a decent replacement for things like CDs as long as the rate is locked in for the entire time there are surrender charges.

The annuities that most journalists (like Jonathan Clements of The Wall Street Journal) typically talk about for retirees are immediate annuities. An immediate annuity is like a pension replacement and can be a good investment in certain situations.

Keep in mind that you should never put all of your eggs in one basket. Beware of anyone suggesting you do so.

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If you have a question for Jeff an answer is just a click away.
Find a wealth of information at Jeff's website.