because he knew that she intended to hold on to it untouched until retirement. Some people Carruthers’ age simply do not. For that reason, financial advisers have specific instructions for people who are interested in annuities but who are far from retirement age.
“If they have maxed out a 401(k) and Roth IRA and are looking to shelter money for retirement, then someone in their 30s should look at variable annuities if they can leave it in until they’re 591/2 to avoid federal penalties,” says Sam Gott, a registered investment adviser, certified financial planner, chartered life underwriter, ChFC, LUTCF, and AAMS in San Antonio. “Most people are not going to be able to max out the others.”
As for retirees, AARP warns against investing in variable annuities that can lose all their value because they have less time to recoup any losses caused by market swings.
However, Pamela Bonds, investment representative at Edward Jones in Olivette, Missouri, encouraged Cozy and Shirley Marks, both 71, to upgrade to a new variable annuity last year because it gave them a chance to meet their multiple goals while offering security.
The Markses live in St. Louis. He is a retired public school administrator. She earned a living as a health center manager. After they watched the value of the Hartford Group variable annuity they had been investing in since the 1970s drop from $600,000 in the mid-1990s to $351,000 in the spring of 2002
, they brought on Bonds to represent their financial interests.
“I wanted to know what I could do to stem the tide,” says Cozy.
But the Markses also wanted access to cash in case one or the other was incapacitated and needed long-term care. And they wanted the money to keep growing as an inheritance for their grandchildren.
Taking their needs into consideration, Bonds moved the Markses into a newer Hartford variable annuity that charges 0.35% to guarantee the principal for 25 years and allows them to increase the base guarantee every five years. They also pay 0.95% for the basic insurance and 2.5% in front-end loads each time they make a deposit into the mutual fund-like sub-accounts.
Bonds sells cheaper fixed annuities but says she recommended the more expensive variable annuity primarily for the guarantee. “The only reason to do this is the preservation of principal,” she says. “If this were my mom, I would want to be able to say, ‘This money will last you.'”
PROCEED WITH CAUTION
Even if annuities seem right based on investment goals and age recommendations, investors must carefully approach the selection process. (See sidebar, “Seven Steps to Selecting an Annuity.”)
Be leery of opening guarantees that are higher than the current average rates. They could represent a signing bonus that will vanish in subsequent years. Creuzot advises checking the annuity’s renewal history. “Someone’s got to question how a company would be able to offer a rate significantly higher than the current standard,” she says.
To research the renewal history showing what guarantee rates are issued at renewal time, check the Website of the insurance