In his latest “How Not To Ruin Your Life” article, Ben Stein warns that eventually there will be a market correction that is based on fundamentals and not on emotion, like the latest little market dip, and that those close to retirement should consider variable annuities as a hedge against this. The younger and middle aged investor shouldn’t worry, and I agree, because we have the one asset capable of weathering the storm – time. For the near retiree or retiree, a variable annuity puts the risk of a stock market fall on the shoulders of the insurer that sells the annuities and off yours.
A variable annuity is an investment that guarantees a specific withdrawal each and every month for life and the insurer generally invests but it comes at a cost, warns Stein. The benefit of the annuity, besides the financial, lies in the fact that it also gives you peace of mind. Having part of your retirement assets in a variable annuity can guarantee a minimum amount each and every month and can act as a nice starting point for the rest of your assets to add to, plus in a market correction you are still guaranteed that minimum amount despite the performance of your portfolio.
To read more about what Ben Stein’s talking about, check out his latest article titled Anticipating All the Retirement Variables.
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5 responses to “Ben Stein Advocates Variable Annuities”
[…] sort of shocked by this one. My Retirement Blog shares that Ben Stein Advocates Variable Annuities. Of course he means only in certain situations. I’m still […]
Carnival Monday!…
When it was on, I absolutely loved Win Ben Stein’s Money. Over at My Retirement Blog, the anonymous blogger reports that Ben’s an advocate of variable annuities (tax advantaged savings vehicles with investment components). Who knew?!…
If you have a portion of your portfolio, that you wish to benefit your favorite under priveledged variable annuiy company and/mutual fund company, then donate that portion of your nest egg to these folks, becuse you will, most likely, not see much of a return. Because of costs, fees, expenses, charges, withdrawals, and market volatility.
Do you know why 91% of all variable annuities are sold with a guaranteed income benefit, and/ or the new and improved version that even comes with a sexy “step-up feature” (we are not talking about taxes by the way). It’s because registered reps,and their broker dealers, are afraid to sell them without the rider. Honestly, it’s about liability, the reps are afraid to charge all these fees, and have their clients lose their money, so they put these riders on to insure that at least the clients, over 20 years, will at least get their principal back, less any withdrawals. But the cost of the riders only add to the negative compounding effect, and their liability. These companys and salespeople have no “cumulative perspective” in regard to variable annuities.
People are baffled, but so tooo are the registered reps selling these, and they should stop now and cut everyones losses. I liken the purchase of a VA (with expensive riders that do nothing more than return your money to you over time, and charge you for it), to trying to swim a mile with ankle weights. Eventually you are going down. Steer clear and do more research. Consider safety, consider moderation, but do not by use VAs with expensive riders.
Pretend you put $100,000 (it would worse if you put in $200,000), into a variable annuity with a GMWB (a guaranteed minimum withdrawal benefit), all toll, charges for mannagemment and expenses will be between 1.25 & 1.75, lets say 1.5%. The average sub account (mutual fund) will cost you approximately 1%, (some a little more, some less). And the GMWB rider cost will be .45% to .75%. ,to make sure you recieve 5% of your original principal over time, once you begin withdrawals. All toll, let’s say 3%.
Magicians should not give away the secrets of their tricks, but 20 x ? = 100% OF YOUR OWN MONEY. Magically 5% works(all people get back is their own money).
If you withdrawal 5%, and the costs for this “financial vehicle” are 3%, your $100,000 is now adown to %92,000. In oderer to still have 100,000, after withdrawals, you would need a net return the next year of approximately 9%, so you would need the underlying securities to return 12% the next year if you add the constant 3% overall cost of the average variable annnuity, (not including indisclosed costs), just in order to get back to $100,000.
Now, consider a 10% loss in the underlying securuities, plus your 5% withdrawl, plus 3% in variable annuity costs, and you are now sitting at $82,000, when all is said and done. So how much do you need, in terms of a positive return the next year, just to get back to your original $100,000? The answer, you would need a 22% just to get back to $100,000. Think about all of this, the next time someone, or some company 9via advertising),says you have the chance to do even better with their step-up benefit, for just a small charge. You are not going to get back to that step -100%, and if you do, your very lucky, but even then, you probably won’t get far above the $100,000. if you get to $110,000, your withdrawl will go to $5,500, a year.
Information, Ben Stein (even though he is brilliant), financial advisors, and connsummers, should think about. For more infornmation, conservative/moderate savers and investors can visit AmericanAnnuityAdvocates.com
#3 – Whatever your name is – you should tell all that to my 92 year old grandmother who ran out of money 8 years ago and is now dependent on her children and grandchildren to survive. Had she been able to purchase a VA product with one of the “worthless” riders you denounce 20 years ago (when unfortunately they did not exist), she would at least have some amount of base income left.
Your inadequate knowledge of VA benefits, how they have developed and changed over the years, and their actual concrete benefits to the consumer, is akin to looking at a Prius and claiming that it is not fuel efficient because the version of the automobile that you are familiar with is a 1973 Thunderbird.
If you had ever had a client or relative run out of money or had a client die with a death benefit value tens of thousands of dollars higher than her cash value, you might have a different frame of reference.
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