Help from PS finical wizards -- CFP recommending annuity

[Lula]

Hi, I am not a financial wizard, but my alarm bells are going off with regard to some advice our certified financial planner is giving us. Briefly, we have inherited some money. To avoid some limited tax exposure, our CFP is advising that we reinvest this money. We do not need the money and are happy to reinvest it for our own retirement. However, our CFP is advising that we put the money into a variable annuity (Jackson National is the company). The fees seem high, and I'm not a fan of how illiquid annuities are in general. Before we give the go ahead to our CFP to move this money to an annuity, I thought I'd ask if any of you have had experience (good or bad) with annuities. Also, recommendations for other choices we might have on where to park this money for the next 5 to 10 years are welcome! My husband and I both have retirement accounts through work, and we have maxed out our Roth IRAs. We also have rental property as an investment. Many thanks.

 

[diamondseeker2006]

I'd put it in a no-load mutual fund and start next year (since you already have contributed this year) adding the max to both of your Roth IRA's and do so each year until the money is all used. Or you could open or add to your kids 529 college accounts, if you have children. No way would I do an annuity with the high fees. If your financial planner sells products and makes a commission, that is a problem because she is not unbiased.

I will just say that my experience was that both my parents had annuities which I am sure were sold to them with high fees and a great sales pitch! I dealt with my dad's when he died and I recently had to cash in my mother's to use toward her nursing home expenses.

 

[TooPatient]

I'd put it in a no-load mutual fund and start next year (since you already have contributed this year) adding the max to both of your Roth IRA's and do so each year until the money is all used. Or you could open or add to your kids 529 college accounts, if you have children. No way would I do an annuity with the high fees. If your financial planner sells products and makes a commission, that is a problem because she is not unbiased.

I will just say that my experience was that both my parents had annuities which I am sure were sold to them with high fees and a great sales pitch! I dealt with my dad's when he died and I recently had to cash in my mother's to use toward her nursing home expenses.

This.

I worked for stockbrokers for 9 years. (I'm not trained so this is NOT any sort of professional advice!)
One thing that both of them complained about and refused to deal in was annuities. They did not like the fees and felt that they were not good options for their clients. Both had very different investing styles but this was one thing they both agreed on.

Mutual funds are a far better option.

Contributing the max to your IRA's is an awesome suggestion. Your tax person should be able to tell you how much you can contribute and to what sorts of accounts. Depending on age, you may also qualify for "catch up" contributions.

Another option you could look into would be a trust. I'm not familiar with all of the ins and outs of the taxes around these (especially regarding inheritances) but your attorney and/or tax advisor should be able to offer some advice.

 

[iLander]

Variable annuities have the highest commission rate of any financial product. Your CFP is in it for the money. They are also just crap because the yield usually "varies" in such a way that it barely covers fees. Free money for the company. Run away. Fixed annuities are better, but not by much.

Check out morningstar mutual fund ratings, they are helpful. Mutual fund managers are true professionals, handling millions of dollars, might as well have them handle yours too.

 

[smitcompton]

Hi,

Annuities, according to Suzy Orman, are a big NO as an investment. She would tell you to find another advisor. The commission is very high for your advisor, and they gain the most.

No Load mutual funds are your best bet, unless you want to play the stock market yourself, choosing individual stocks from the likes of Ameritrade, etrade, Schwabb and others. I believe you ought not pay more than a 1% commission for the management of your account. Vanguard, Fidelity are two funds that come to mind.

I play the market myself and enjoy it, but that is not for everyone. Mutual Funds are a good way to go if you want good management of your money.

I really know nothing about IRAs etc.

No Annuities! Annette

 

[monarch64]

Variable annuities have the highest commission rate of any financial product. Your CFP is in it for the money. They are also just crap because the yield usually "varies" in such a way that it barely covers fees. Free money for the company. Run away. Fixed annuities are better, but not by much.

Check out morningstar mutual fund ratings, they are helpful. Mutual fund managers are true professionals, handling millions of dollars, might as well have them handle yours too.

I agree. I'm no expert and I do not have experience with variable annuities, but I used to work for a guy who was ALWAYS trying to sell them. Oh, the conversations I overheard from him sitting in his beautifully-appointed office attached to his giant warehouse of classic and luxury automobiles.

 

[luv2sparkle]

We have an annuity for my son through Metlife. It was for a one time investment of a million dollars. It pays a monthly check that covers his living expenses and goes up every year. My the time my husband and I are gone and hopefully he will be close to 50 it will be enough to cover any living facility he will need. It is guaranteed for his life. It was recommended to us by the lawyer that set up his trusts. That is not his only investment, and is the smallest part of his investments but right now the others are not paying all that much so we are happy with it. Metlife was the highest rated company for annuities.

 

[iLander]

We have an annuity for my son through Metlife. It was for a one time investment of a million dollars. It pays a monthly check that covers his living expenses and goes up every year. My the time my husband and I are gone and hopefully he will be close to 50 it will be enough to cover any living facility he will need. It is guaranteed for his life. It was recommended to us by the lawyer that set up his trusts. That is not his only investment, and is the smallest part of his investments but right now the others are not paying all that much so we are happy with it. Metlife was the highest rated company for annuities.

But is it a variable annuity? I suggest it might be a fixed annuity, which is not nearly as bad as a variable one.

 

[partgypsy]

We have an annuity for my son through Metlife. It was for a one time investment of a million dollars. It pays a monthly check that covers his living expenses and goes up every year. My the time my husband and I are gone and hopefully he will be close to 50 it will be enough to cover any living facility he will need. It is guaranteed for his life. It was recommended to us by the lawyer that set up his trusts. That is not his only investment, and is the smallest part of his investments but right now the others are not paying all that much so we are happy with it. Metlife was the highest rated company for annuities.

It sounds like you may have one of the few situations where an annuity is a good idea; where you have a dependent that you want to preserve capital and provide a fixed income for, and that it is not the only source of investment income.
In their case it sounds like it is not a good use of their money, and I agree with other advice already given (max out tax deferred accounts and then invest in low fee mutual fund of a risk level comfortable with).

 

[partgypsy]

We have an annuity for my son through Metlife. It was for a one time investment of a million dollars. It pays a monthly check that covers his living expenses and goes up every year. My the time my husband and I are gone and hopefully he will be close to 50 it will be enough to cover any living facility he will need. It is guaranteed for his life. It was recommended to us by the lawyer that set up his trusts. That is not his only investment, and is the smallest part of his investments but right now the others are not paying all that much so we are happy with it. Metlife was the highest rated company for annuities.

It sounds like you may have one of the few situations where an annuity is a good idea; where you have a dependent that you want to preserve capital and provide a fixed income for, and that it is not the only source of investment income.
In their case it sounds like it is not a good use of their money, and I agree with other advice already given (max out tax deferred accounts and then invest in low fee mutual fund of a risk level comfortable with).

 

[Lula]

I'd put it in a no-load mutual fund and start next year (since you already have contributed this year) adding the max to both of your Roth IRA's and do so each year until the money is all used. Or you could open or add to your kids 529 college accounts, if you have children. No way would I do an annuity with the high fees. If your financial planner sells products and makes a commission, that is a problem because she is not unbiased.

I will just say that my experience was that both my parents had annuities which I am sure were sold to them with high fees and a great sales pitch! I dealt with my dad's when he died and I recently had to cash in my mother's to use toward her nursing home expenses.

Thanks, D.S.
Yes, we are currently dealing with dissolving a family trust, which included a mix of investments, including several annuities. The annuities provided an income stream in addition to a pension, Social Security, and long-term care insurance. But this trust was established to benefit family members from the WWII generation, so we'd like to reevaluate the investments. The living beneficiaries of the trust, including us, have different goals. Some of us have kids; some don't.

 

[Lula]

I'd put it in a no-load mutual fund and start next year (since you already have contributed this year) adding the max to both of your Roth IRA's and do so each year until the money is all used. Or you could open or add to your kids 529 college accounts, if you have children. No way would I do an annuity with the high fees. If your financial planner sells products and makes a commission, that is a problem because she is not unbiased.

I will just say that my experience was that both my parents had annuities which I am sure were sold to them with high fees and a great sales pitch! I dealt with my dad's when he died and I recently had to cash in my mother's to use toward her nursing home expenses.

This.

I worked for stockbrokers for 9 years. (I'm not trained so this is NOT any sort of professional advice!)
One thing that both of them complained about and refused to deal in was annuities. They did not like the fees and felt that they were not good options for their clients. Both had very different investing styles but this was one thing they both agreed on.

Mutual funds are a far better option.

Contributing the max to your IRA's is an awesome suggestion. Your tax person should be able to tell you how much you can contribute and to what sorts of accounts. Depending on age, you may also qualify for "catch up" contributions.

Another option you could look into would be a trust. I'm not familiar with all of the ins and outs of the taxes around these (especially regarding inheritances) but your attorney and/or tax advisor should be able to offer some advice.

Thanks, TooPatient. I was hoping employees and former employees of investment firms would chime in! Your response confirms my suspicions that many professionals in the field simply won't sell annuities because they're a bad deal for the client. I did some reading on annuities and found this quote: "Annuities aren't bought, they are sold." And, yeah, looking at the slick brochures we got, that rings true

 

[Lula]

Variable annuities have the highest commission rate of any financial product. Your CFP is in it for the money. They are also just crap because the yield usually "varies" in such a way that it barely covers fees. Free money for the company. Run away. Fixed annuities are better, but not by much.

Check out morningstar mutual fund ratings, they are helpful. Mutual fund managers are true professionals, handling millions of dollars, might as well have them handle yours too.

Hi, iLander. Yes, the high commission rate is actually what caught my eye and set of my internal alarm bells. Free money for the company is right! I'm going to listen to my gut on this one!

And thanks for the suggestion to check out morningstar -- good idea; I will do that.

 

[Lula]

Variable annuities have the highest commission rate of any financial product. Your CFP is in it for the money. They are also just crap because the yield usually "varies" in such a way that it barely covers fees. Free money for the company. Run away. Fixed annuities are better, but not by much.

Check out morningstar mutual fund ratings, they are helpful. Mutual fund managers are true professionals, handling millions of dollars, might as well have them handle yours too.

I agree. I'm no expert and I do not have experience with variable annuities, but I used to work for a guy who was ALWAYS trying to sell them. Oh, the conversations I overheard from him sitting in his beautifully-appointed office attached to his giant warehouse of classic and luxury automobiles.

Thank you monarch -- yup, this was my suspicion as well, that'd we'd be paying for his new car, new house, vacation to Europe...

 

[Lula]

We have an annuity for my son through Metlife. It was for a one time investment of a million dollars. It pays a monthly check that covers his living expenses and goes up every year. My the time my husband and I are gone and hopefully he will be close to 50 it will be enough to cover any living facility he will need. It is guaranteed for his life. It was recommended to us by the lawyer that set up his trusts. That is not his only investment, and is the smallest part of his investments but right now the others are not paying all that much so we are happy with it. Metlife was the highest rated company for annuities.

Thanks so much for sharing your family's experience. Actually, reading your post reminded me that my husband did mention to our CFP that we were interested in a mix of investments, including something that would provide an income stream after retirement (in addition to other investments). So, his comments may have led our CFP done the annuity path. But even so, I'm not happy that the annuities he suggested to us are variable and have such a high commission. There seem to be better options out there. I'm going to take a look at what Metlife offers.