Caveat Emptor? Shifting Attitudes on Annuities

Grote, Jim
February 2003
Journal of Financial Planning;Feb2003, Vol. 16 Issue 2, p50
Academic Journal
The article reports that annuities are becoming increasingly attractive to financial planners. Historically, most financial planners have not been fans of annuities. Planners did not like the high annual fees, first-year bonuses that quickly vanished, the conversion of capital gains to ordinary taxable income upon withdrawal, commission-driven churning of accounts and the fact they are tax time bombs for heirs because annuities lack a step-up basis. What usually annoys planners is not annuities per se, but variable annuities able annuities often outperform their illustrations, but in a their market it is just the opposite. According to a consensus of the speakers at the Financial Planning Association's Retreat in April 2002, the market will average five to seven percent over the next six to eight years. If you subtract annuity fees from these returns, you are left with very little, yet agents are still using illustrations showing 12 percent returns based on 10-year and 15-year averages. Insurance companies need to sell something. The stock market is down, so they switch from promoting variable annuities to promoting fixed annuities. Annuity salespeople should be selling variable annuities when the market is down.


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