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Expert Q&A Archive

11/17/2009
How helpful are annuities for retirement plans?
I had a question about annuities. I've been doing classes on different retirement plans, and one of the things I just want to know your thoughts on is fixed or variable annuities. How helpful are they for retirement plans?
Steven Rodriguez:
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I am a big fan of annuities, especially variable annuities. In my practice I allocate 25-30% of my clients' total portfolio to variable annuities. It is a great way to create your own personal pension plan.

However, I must caution you. Not all annuities are created equal. You must do your homework and read the fine detail [the information in fine print about particular annuities].
Gary Silverman, CFP:
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Though most insurance agents will disagree with me, I generally advise NOT to use variable annuities in tax-qualified accounts. In my opinion, given the long-term nature of retirement investing, the principal protection riders are not really needed, and since you are already in a tax- qualified account, there is no need for the tax-deferral features.

Here are some other resources:
FINRA's publication, "Variable Annuities: Beyond the Hard Sell"
http://www.finra.org/investors/protectyourself/investoralerts/annuitiesandinsurance/p005976

Securities and Exchange Commission, "Variable Annuities: What You Should Know" http://www.sec.gov/investor/pubs/varannty.htm
Michael A. Masiello:
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Annuities can be useful tools, normally found in non-[tax]-qualified accounts, but can be used in [tax]-qualified retirement accounts. Lately they are gaining more popularity due to some of the guarantees and income benefits they offer. As with many facets of finance, moderation and circumstance will dictate the effectiveness of any product or combination of products.
Martha Fortune O'Brien:
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Have you been "doing classes" on retirement plans or retirement planning? For retirement plans, annuities are not essential. Most retirement plans today are used for ACCUMULATION of retirement assets. These plans generally do not provide access to many types of investments that are useful DURING retirement. Most people move the funds they have accumulated out of the retirement plan before they begin retirement. This is usually done with the advice of a trusted professional.

Annuities are quite useful in retirement planning for an individual when that individual does not have income sources like a pension that will cover basic needs, including food, shelter and medical. I use annuities to provide guaranteed income that covers survival needs. The variety of annuities available and market hype makes it difficult for an individual to sort out what they really need and where to buy it. Please get help from a trusted advisor or planner. You want to figure out your needs with an advisor and then figure out what product meets those specific needs.