The Annuity Con Game 2/29/2001 Many prospective clients that call us to discuss working with us have already met with a financial planner or insurance agent that recommends the purchase of a large annuity for tax benefits. What these people fail to realize really how lucrative the commissions are on these products. Annuities may add up for you in some cases, but normally they don't unless you happen to own shares in a company pushing them. The most common type is the tax deferred annuity. In the case of a deferred annuity, you pay up front or with a whole series of installments, and then your investment will increase without the IRS taking its pound of flesh until you withdraw. You can then look forward to regular income to tide you over in your old age. Does much of this sound familiar? Of course. Retirement plans like an ordinary IRA can postpone the day of reckoning with the IRS until long after your investments have compounded mightily. You might say that tax-deferred annuities are redundant since other plans are already posting the payments. Why buy them, then? In fact, with some important exceptions, we believe that you normally should pass on annuities unless you wish to live the good life vicariously through the broker or life insurance rep whom you put in that multimillion-dollar mansion. Forbes' latest advice, offered in an article mentioning an SEC examination of the practices of some leading annuity marketers, does not even come with a qualifier: "Don't buy an annuity." The magazine passes on the horror story of a retired couple in Potomac, Maryland, who lost many thousands of dollars by following the suggestion of a Certified Financial Planner peddling annuities on commission. Not all CFPs, alas, are Fee-Only. Here is the case that the Motley Fool, business magazines and Fee-Only investment advisors have made against annuities: 1. Tax-related arguments exist beyond those already given. Remember, capital gains that you make in the market are taxed at a lower rate if you hold your stocks long enough before selling. On the other hand, Uncle treats annuity payouts as ordinary income (minus the amount you've paid for the annuity). 2. Most annuities cost too much. With everything added in, you do not enjoy the same low fees over time that you would through a Fee-Only planner or Vanguard-style index fund. You're hit with all kinds of bizarre charges such as "mortality and expenses charges." Certain annuities are not so bad (some of the better possibilities come from Vanguard, T. Rowe Price and TD Waterhouse and have low yearly expenses). But Fortune says most are "still sold by commission-paid insurance agents, stockbrokers, and financial planners. These folks earn more selling annuities than they could selling virtually any other investments." Fortune says that the sales commissions on variable annuities--discussed later in this article--"average six to seven percent and go as high as 15 percent. Commissions on load mutual funds average more like three to four percent." On top of other outrages, you may pay surrender charges as high as seven percent the first year if you cash your annuity in ahead of time. Plus, you'll pay management fees, just as with a mutual fund. Normally they will be lower--but not as small as those that an index fund charges. When all's said and done, your annual fees may approach two percent--or just about twice as what a Fee-Only planner would charge. 3. The insurance coverage that annuities offer isn't that great a deal. They don't even work out well as death benefits. Fortune has said that annuities are "an inefficient way to buy life insurance, and almost no one collects on it anyway." 4. To grow your investment, the annuity providers will often rely on means that are less than stellar in yields. Fixed annuities mean assure you a certain return ahead of time, but then it's so low that inflation could pose a real threat to you in retirement. Within a variable annuity, you can indeed decide to an extent how to invest your money. But it will have to end up in the equivalent of in-house mutual funds. Some choice, eh? Does this not sound a little like the incestuous dealings of brokerages where not-so-objective planners direct you to their own dogs? Another choice might be a equity-index annuities. Yes, you'll be guaranteed a return of perhaps several percent, but then your upside from the stock market would be limited, too. If you're a long-term investor, why not simply invest in the funds yourself--perhaps in an index without the handicap? 5. Annuities tie up your money so you can't invest it more profitably. In fairness to annuities, there are occasions when they might make sense. According to the Motley Fool, they "are desirable only (if ever) for those who: * "Have contributed the maximum to their 401(k) plans and IRAs and desire further tax deferral on investment gains." * "Prefer investing in mutual funds as opposed to individual securities. * "Will keep the annuity for at least 15 to 20 years." But, let us add here at ElderAdo, that argument is rather irrelevant to most people who are retired or close to it. * "Are in a 28 percent or higher income tax bracket today, but expect to be in a lower income tax bracket in retirement." * "Don't need the annuity proceeds prior to age 59 1/2. * "Are unconcerned that heirs must pay ordinary income taxes on any appreciation. * "Desire a 'guaranteed' income for life in retirement." The later argument can be powerful. But remember the tradeoff. If history repeats itself, the "guaranteed income will most likely be much smaller than the rewards of investing regularly and prudently in the market. A outrageous example of the risk of trusting annuity-pushers comes from our own back yard in Potomac, Maryland, where a CFP urged an elderly couple to trade in an annuity he had sold them four years before. He said they would get a $50,000 reward for making the switch. He said it would more than cover the old model's $25,200 surrender charge, which was 1/25 of the original investment ($630,000). They would enjoy a $24,800 profit. But as Forbes revealed, there was a catch: "The annual expense was 1.7 percent compared with 1.25 percent on the old account, and the surrender charge, which started out at an exorbitant eight percent, would take nine years to go away. If the couple had kept their original annuity for three more years, they could have surrender it with no penalty. "Sadly, the husband then was diagnosed with terminal cancer, and he needed cash for estate tax purposes and medical expenses. "But getting out meant paying a surrender fee of $80,000 plus reimbursing the insurer the entire $50,000 bonus. The market's 2000 slump eroded the annuity's value, so they walked away with a paltry $605,000. Now they're suing their planner for deceptive sales practices." Did this happen to financially naive people? Hardly. The couple had gotten well off through ownership of apartment buildings. With such cases in mind, the SEC is examining the marketing materials of the biggest underwriters of annuities, including, says Forbes, ING Golden American, American Skandia and Allianz Life. It quotes Paul Roye, director of the agency's Divsion of Investment Management: "The industry is on notice." Enough said. If you feel you must buy an annuity, just be certain that the person recommending it is not on commission. Do not shy away from asking how he or she will benefit directly or indirectly from a sale, and watch out not just for present fees but for those down the road. Links that might be useful: www.prestigeadvisors.com/The_Annuity_Con_Game.htm Annuity Gratuity Carrie Coolidge-Forbes.com 02.19.01 www.forbes.com/global/2001/0219/064.html

I'd say that buying stock is like buying ownership of a company's booster club. Stocks go up and down based upon the changing human emotions of the investing public concerning the given company, not actual results. The shares of troubled companies can rise, and those of successful companies fall. The old cliche is that market prices are driven only by greed and fear. Dividend reinvestment plans are just like dollar cost averaging, they are non-strategy "strategies" created in the interest of financial advisers and brokers, not the investors themselves. Outside of a retirement plan, you need to come up with cash from other sources to pay tax on the dividend. How much sense does that make as a strategy? You do know that brokerage firms and advisers usually receive payments from fund advisers (or customers) based upon account balances. Why distribute a dividend to the customer, when you can retain the funds and have a bigger base for payments? Or, in the case of direct stock holdings, the dividend paying company can avoid paying out the dividend and just keep the cash. Issuing more shares is free. Oh, I have an idea, let's call doing that a Dividend Reinvestment Plan. Like it or not, that's where this "strategy" came from. Tech stocks are volatile, there's no take-away lesson to be learned from that fact. Do as you like, keep your eyes open. Good luck.

I got all the documentation from MIL. I don't know who this adjustor is, but he clearly has less homebuilding experience than me. He totally missed the ballusters, handrails, misidentified the species of wood. The roof is damaged. There are chunks of siding missing and he didn't account for that. She does have replacement coverage, so I don't get the depreciation thing. I need to call them, but I need the contractor to add more detail to his written estimate as well. Tree removal is way more than $250 around here. You won't even get someone to come to your house for that. Plus there is nowhere to take them. The nearest disposal for trees is an hour away, so there is 2 hours of labor plus the dump fee there. It's a pine, so no one wants it. This was a huge tree, over 24" diamter. I don't know how to handle the siding and roof issue. The siding can probably be matched good enough, especially if we powerwash and restain the entire side (can I ask for that? It's cheaper than replacing the siding on the entire side). There is no way to match the roof, but the roof is circa 1990, and it isn't visible from the ground. Do we just patch that section and have it not match? I don't want to over reach, but I also don't want to not ask for what she is entitled to.

Vesur first joined this site on Jan 22, 2014. __________________________ Rates offered on annuities have a close relationship to interest rates offered at the time that they are set up. As you've heard, our governments have been keeping interest rates low, the reason claimed to be to encourage our entrepreneurs to invest, to get our economy growing again. They don't mention that they owe huge amounts of money ... and growing monthly ... so the idea of having to pay higher rates of interest on that huge and growing debt ... makes their hair stand on end (if those old mostly male legislators have much left). But ... considering that huge and growing debt ... if they don't offer increased interest rates, aren't potential investors going to be unwilling to lend them money, fearing that they won't be able to pay off their debts? Plus ... as they are printing money hand over fist ... won't buyers of those bonds fear that, what with so many more dollars floating around ... that they'll be paid off with dollars that won't buy much? On our province-wide phone-in discussion group weekdays at noon for an hour on our national radio, a little over a year ago the question of the day was, "Are you better off than you were four years ago?". I don't remember how much attention was paid to the matter of four years from late '12 having been late '08, which, with early '09, was a bad time to be in the stock market. I said that I was ... but only because I disobeyed the usual advice given to people about their investment planning. We've been told that we should invest in equities, stocks, real estate, etc. where there's a good possibility of growth when we're young, with many years ahead to replace possible losses - a long time horizon. About 80% equities, 20% bonds at age 20. Yeah, right: when young folks carry student debt, maybe have credit card debt, are buying a car, renting/buying a roof over their heads, getting married ... having kids. As we age, to shift a percentage of our assets into more secure investments and fewer in the volatile ones, e.g. at 35, 65% equities, 35% bonds and other quaranteed-asset instruments: at age 50, about 50-50. At 80, they recommend that we have 80% bonds, GICs, CDs, etc. where the amount of the principal is guaranteed not to shrink (and carries another never-mentioned guarantee ... that, apart from the rent on the money, it isn't going to grow, either). But, as each dollar's value shrinks each year, due to inflation, I must put part of the rent with the principal in order to maintain its purchasing power at the earlier level. In Canada, interest income is taxed at top marginal rate ... with no offsetting credits. If I buy a bond paying 2%, and am in 25% tax bracket, that reduces my after-tax retention to 1.5% ... and have you heard what the official rate of inflation is, these days? When I take that 2% official rate from the 1.5% left to me after taxes are paid ... I'm under water! Losing money. And ... have you visited a grocery store lately? Do you agree that prince increases there, or in other areas of the economy (apart from wage rates), are limited to 2%? At age 80+ ... I was better off at the time of the phone-in (and even more so, now) than I was 4 years previously ... and for one reason, only: I'm invested 80% in well-chosen, quality equities. And I own a major proportion of the asset in stocks of quality corporations that I own directly, not through mutual funds, most of whom, in Canada, take on an annual basis, about a quarter to a third of average, long-term growth rates in the stock market ... and they get theirs, every year, even if there is no growth ... and they have no skin in the game (except that, if you get mad enough at their low rates of growth, about 85 - 90 percent of the time not outperforming the sector of the market in which they invest, you take your money and invest elsewhere). ole joyful