THE RIGHT QUESTIONS MAKE ALL THE DIFFERENCE

When it comes to annuities, you can’t ask enough questions. Since most annuity sales involve the payment of a commission as high as 10%, you may have discovered that most annuity salesmen are quite persistent.

As regular readers know, I have been conducting annuity coaching sessions for the past few months to help those who have questions about their existing annuities or who are receiving pitches from the salesmen to buy the hundreds of annuity products available today.

I just want to continue to enforce the idea that you need to ask questions before you leap into any financial product — especially annuities. Since 90% of all annuities come with a high sales commission that is paid up front, and with big surrender fees built in to the products to discourage you from switching providers, you’ve really got to be a careful buyer.

Here is a recent question I received from an Alert reader regarding his annuity.

Doug,

I have been approached by a salesman regarding a fixed index annuity. He represents a company named Allianz. The name of the specific index annuity is called InCommandDex. I have read all of the propaganda and despite a few things I don’t like, overall it looks like a good investment for me. I am 70 years old and would like to sink about 85% of my assets into this annuity. What do you think?

John

Here’s my response to John’s inquiry.

Hello John,

I have said many times before that annuities can offer great benefits to investors; however, the devil, as they say, is in the details. I don’t have all the answers for you, but I do have a few opinions and questions you should be asking.

First of all, annuities work best for younger investors. The reason why is because the main benefit of an annuity is tax-deferred growth. There are two types of annuities, deferred and immediate.

Deferred annuities are those that allow young people to add to an additional retirement account, which is great because most people are under funded for that long-term goal. An immediate annuity is for someone who wants monthly income right now. From what you have told me, you’re being sold a deferred annuity.

Right there I see a big problem, as you are 70 years old and I presume retired. At your stage in life you don’t need tax deferral, you need income. A deferred annuity is completely inappropriate for someone your age.

If you lock up 85% of your assets in this annuity you will not be able to get at this money without penalties for 10 years. I know you can withdraw 10% a year, but that does not give you access to all of your money. So my opinion is DO NOT PLACE 85% OF YOUR LIQUID ASSETS IN A NON-LIQUID INVESTMENT AT YOUR AGE!

Here are some additional questions that may help you and other readers.

What is the commission that will be paid to the agent?
What are the surrender charge rules and terms?
What are the withdrawal provisions in this contract?
When will you start withdrawing money and what are the terms of that income stream?
What is the financial rating of the insurance company issuing the contract?

Hope this helps,

Doug

If you would like to get your FREE annuity coaching session with Doug Fabian, simply send me an e-mail.