A new take on annuities
to 2 percent also is charged to the investor’s account, which acts as a drag on the money that would otherwise accumulate.
Pittsburgh financial adviser Robert Fragasso said he is adamantly against placing variable annuities in an IRA but has no objection to fixed annuities as long as the rate is competitive and the time period of the rate guarantee commensurate with competitive products.
“The problem I have is using an annuity as a pension,” Mr. Fragasso said. “You are locking your capital up forever and you only get a monthly payment. What if you need the money? What if you or your spouse becomes ill and you have to self-pay for medical treatment? What if a child or grandchild needs help and you have locked up all your capital?
“What if you have a lifestyle or investment opportunity and you only have a monthly check?” he said. “Flexibility with one’s money is a valuable commodity.
“Once you annuitize that money and make it a monthly pension, you’ve lost all flexibility. You can annuitize for your life and your spouse’s life, and what if the next day you are both killed in an accident. What do your kids get? Nothing.”
In an age where company pensions are going by the wayside, Mr. Nuss said a fixed annuity can be a viable substitute for those people who have saved enough to purchase a meaningful retirement income stream.
He noted every annuity product has its own minimum deposit requirement, which typically ranges between $5,000 and $20,000. Single contribution annuities are best suited for people who can make a one-time investment large enough to meet their needs. Flexible premium annuities allow purchasers to make ongoing contributions until they are ready for their income stream to begin.
“My main contradiction to the advice handed down by many financial advisers is you can’t lump all annuities into one category and say none of them should be placed in an IRA account,” Mr. Nuss said.