Do You Know Your Annuity Products? Part 1 of 4

Earl E Bird's appearance on The Camilla Cat Show

Earl E. Bird here to tell you about my recent appearance on The Camilla Cat Show, where she asked me to break down annuity terms so that the everyday American saver could understand the products better. I bring to you this 4-part series where we pay close attention to one term each week, which will provide you with a suit of financial armor. After all, when you’re well informed about annuity products you’ll make well informed decisions on which work best for you.

Camilla Cat: What is a variable annuity?

Earl E. Bird: Well in its simplest form, it’s a product that offers investment options combined with tax-deferred growth. But be aware that it’s only tax-deferred when taking no withdrawals. Variable annuities usually return your deposit on your death, but most products offer far better death benefit enhancements.

At its most complicated, variable annuities may provide 100 percent principal (your deposit) protection after seven to ten years and offer guaranteed withdrawals of 6 percent of your annual value. In addition, it may provide a  step-up death benefit, which means that even if the market drops and your contract value decreases your death benefit locks in your annual contract values. Phew, that is complicated!

Camilla Cat: Sure is. But if it’s so complicated then who would buy a variable annuity?

Earl E. Bird: The ideal candidate wants positive outcomes from investing in stocks while taking withdrawals that will be guaranteed for a lifetime.

Camilla Cat: It seems too good to be true. What’s the catch?

Earl E. Bird: The catch is you pay for the guarantees through very high contract fees. In my calculations, fees can top 3.5 percent annually. True, variables have wonderful features like guaranteed withdrawals and market upside, but you better use those high-fee features. Also, if the contract features seem too good to be true, be careful. Big variable annuity companies may have problems guaranteeing contracts in the future.

Camilla Cat: Variable annuities are insurance products right?

Earl E. Bird: That is correct, my feline friend. Only insurance companies offer variables. When buying a variable annuity, company strength should be a priority. Contract guarantees need to be protected so stick with an insurance company with A or A+ A.M. Best rating and AA- or better S&P rating.

Pay-in Forward: 

Unless your daughter is in her fifties, a variable annuity shouldn’t be an option. To pay those fees for decades would smash your nest egg to pieces. Your daughter needs a low-fee fund for her hard working money.

Do You Know Your Annuity Products?
Part 1: Varied Annuity    Part 2: Fixed Annuities    Part 3: Fixed Index Annuities    Part 4: Index Annuities

Earl E Bird

I'm Earl E. Bird and I am very concerned about saving for my senior years. I am amazed at the stumbling blocks that exist when saving for retirement. That's why I take my time when making decisions on building my nest egg.

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About the author

I'm Earl E. Bird and I am very concerned about saving for my senior years. I am amazed at the stumbling blocks that exist when saving for retirement. That's why I take my time when making decisions on building my nest egg.

More posts by | Visit the site of Earl E Bird

 
 
 
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