Posted on 09/04/2006 9:07:37 AM PDT by BenLurkin
Money Magazine) -- Last December, Tom Donofrio decided it was time to get serious about retirement. So with the help of a financial adviser affiliated with MetLife, the 39-year-old father of two transferred money that had been sitting in a 401(k) at a previous job into an IRA rollover account invested in mutual funds.
Or so he thought. Donofrio didn't understand that the bulk of his retirement savings - some $22,000 - had actually ended up in a variable annuity, an insurance product that puts your money into a fund-like portfolio but typically carries fees that are much higher than those of funds. In Donofrio's case, those charges can run as high as 2.8 percent a year, at least double what he could be paying for a portfolio of funds.
Annuity type The problem Equity-indexed High price to get out, bewildering return formulas and caps on how much you can earn IRA rollover The guaranteed protection referred to is expensive and almost certainly unnecessary. Annuity swap You may face withdrawal penalties and higher fees; new surrender charges kick in.
What's more, he's effectively locked in for the foreseeable future because bailing out within the first seven years would trigger early-withdrawal penalties of as much as 7 percent.
"I suppose I should have done a better job researching this," says Donofrio, "but basically you trust the adviser's expertise." (While not commenting on the specifics of Donofrio's experience, MetLife told Money Magazine its representatives take great care to ensure that clients understand the products.)
Every year thousands of people like Donofrio are steered into high-cost annuities, often without knowing exactly what they're buying. What draws people in are sales pitches that portray annuities as the ideal solution to every fear.
(Excerpt) Read more at money.cnn.com ...
I've been an annuity "guru" in my past, and they are definitely oversold. The bells and whistles usually aren't worth the price.
There are a small, small number of investors who can benefit from the variable annuity protections, and for them the extra expense is worth it. For most others, forget it.
And don't get me started about Equity Indexed Annuities. Biggest crock of crap I've ever seen.
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