Should I own a Variable Annuity? Suze Orman’s opinion below

October 21, 2016

Suze Orman clearly describes why most financial advisors love Variable annuities. “Should you own a variable annuity” describes some of the downfalls, but she doesn’t discuss the biggest problem with them. The many financial advisors that recommend them will say you can get a guarantee of 5%-7% for the rest of your life on your money. The problem is, that rate isn’t credited to the true “walk away money” that you can withdraw in a large lump sum.

You would have to live to age 90-100 to earn a decent rate of return on this guaranteed income. We can prove this with math by looking at the withdrawal payout rate the contract has “guaranteed to pay you as income for life”. The insurance company has carefully calculated this, and they do not give anything away for free. The fees we see range from 3%-5% per year inside variable annuities. Most clients thought they were paying 1%-1.5%. We offer a Variable Annuity X-ray to expose the truth about fees and how the annuity actually works.

There are five cautions from the SEC regarding variable annuities. Make sure before you purchase one that you have asked your financial advisor these hard questions:

  1. What are all the insurance costs that will be charged in my policy? M & E charge? Income rider charge? Death Benefit rider charge? Long Term Care rider charge? Admin fee?
  2. What are all of the mutual fund or sub account fees inside the variable annuity?
  3. Is this 5%-7% guaranteed income on the true amount I can withdraw if I take a lump sum?
  4. Is my principal balance guaranteed from stock market losses? What about my growth; is it protected?
  5. What happens when my account value goes down below what I put in because of stock market losses? Do I get my principal balance back or is this only if I die?

Here is an article I wrote on Fortune.com that discusses the Myths of Variable Annuities.

Ask these hard questions and don’t accept some long, drawn-out answer. If you don’t get a solid answer, then you need to get a second opinion or a Variable Annuity X-ray to see if this product is a fit for your financial situation. Contact us if you have a question about your existing variable annuity and want a second opinion. Remember, the greatest financial product will NOT solve your financial problems, but a comprehensive financial plan will help you see if you can reach your financial goals.

Written by  Brian Bowen