Welcome to the Hotel California of Investments: Indexed Annuities. With surrender fees as much as 10% per year lasting as long as 10 to 12-years, “You can check out any time you like, but you can never leave!” Take caution: Because as money flows into indexed annuities remember that the big winners are certainly the insurance companies and the salesmen (who make 5 to 8 percent of the sale).
Penelope Wang explains at Consumer Reports:
Unlike regular annuities, which give a fixed payout, returns on indexed annuities rise and fall with the stock market. But these annuities don’t invest in stocks. Instead, that money is invested in bonds and stock options, and your returns are based on a formula linked to an index, says Sheryl Moore, president and CEO of Wink, a life insurance and annuity research firm in Des Moines.
So even if the stock market posts strong gains, your return may be considerably less. Indexed annuities often cap your payout, sometimes at 6 to 8 percent, not including dividends. That means if the stock market climbs 12 percent, you may earn just 6 percent. These terms may change, depending on guarantee periods and economic conditions.
“With indexed annuities, the simple question of ‘what am I getting for my money’ is very hard to answer with a high degree of confidence,” says Glenn Daily, a fee-only insurance analyst in New York City.
Investors do receive downside protection, typically in the form of a minimum guaranteed rate of return or a promise that you won’t lose money, even if the market falls. That minimum return may range from 0 to 3 percent.
But indexed annuities carry fees or spreads, which may take 2 to 3 percent annually out of your returns. Most also impose surrender charges, perhaps 10 percent of the account value, which typically don’t expire for 10 years, Moore says. (For tips on minimizing investing expenses, see “How to Avoid Investment Fees,” which is part of Consumer Reports’ What the Fee?! campaign.)
“In the end, you may be getting a net return that is closer to a bond or CD than the stock market,” says Scott Dauenhauer, a certified financial planner in Murrieta, Calif.
Read more here.
E.J. Smith - Your Survival Guy
Latest posts by E.J. Smith - Your Survival Guy (see all)
- Stupid Attack on NRA has Battleground State Dems Terrified - August 7, 2020
- Your Retirement Life: “You Want Maine Lobster” - August 7, 2020
- Americans Want Guns Now More than Ever: Will They Elect Anti-Gun Politicians? - August 6, 2020
- The Wealthy Escaped the City: Politicians Beg them to Come Back and Pay Taxes - August 6, 2020
- Lott Debunks Gun Control Myths - August 5, 2020