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Beware the Coming 401(k) Annuity Storm

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By Dmytro Balkhovitin @ Shutterstock.com

Congress is trying to pass new rules on 401(k)s. There are some good reforms in the current legislation, but one glaring red alert is the increased role of annuities planned for 401(k) accounts in the bill.

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Annuities can be fee-sucking, performance killing traps enriching the companies that sell them, rather than the customers who buy them.

Anne Tergesen reports on some of the drawbacks of annuities:

Annuities aren’t often used in 401(k) plans, in part because employers worry that if they pick an insurance company that ends up going bust, the 401(k) participants will sue the employer.

…

Annuities have some drawbacks. For example, they offer less potential for outsize gains than stocks or funds. And once you hand over your money to an insurer, you may not be able to leave it to heirs or get it back without paying surrender charges or sacrificing at least some of the guarantee you have paid for.

Read more here. A portfolio of stocks and bonds focused on generating income and avoiding risk will serve you and your family far better in retirement than any annuity ever could. Beware.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.