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Navigating annuities, rates and benefits

09/20/11

A recent article in the New York Times cautions recent retirees against high rate annuities, which many experts say are structurally complex, and while the high rate may be attractive on the surface, the bottom line is disappointing.

With interest rates extremely low, many retirees are interested in variable rate annuities that offer the potential for growth, but some financial advisers say that many of these investments are difficult to navigate, and fees and taxes may negate the interest earnings that originally made the variable annuity more attractive than the standard fixed rate annuity.

"You can get a stream of income, but not the pot of money they said this grew to be," Christopher Cordaro, chief investment officer of RegentAtlantic Capital, told the source. "If you really do the math on these, the guarantees aren’t worth what you’re paying for them. Insurance companies tend to make a lot of money off these things."

While Cordaro recommends fixed rate annuities, he does caution that no annuity is federally insured, so investors should be aware of the risks regardless of the type of annuity they choose to invest in. While many financial advisors agree that variable annuities can be difficult to decode, some argue they do offer beneficial rates if properly managed.

According to a recent LIMRA study, 35 percent of American retirees currently supplement their base retirement income with an annuity.
 

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