Gold in Them Thar Annuities

 In Advisers, Agents, Asset Allocation, Expectations, Fees, Financial Planning, Forecasts, Future, Goals, Insurance, Investments, Personal Finance, Retirees, Retirement, Risk


I AM NOT MUCH OF A FAN OF VARIABLE ANNUITIES.  Primarily because I don’t believe that most people need to insure their investments.  Nor do I think the value of future guaranteed payments to be worth the cost.  But if someone truly understands the cost and benefits of the annuity and still wants to use one, I don’t think it is the worst decision they can make.  There can certainly be a role for a variable annuity in some investors’ portfolios.

AND I JUST CAME ACROSS ONE.  My former firm (believe me, I have no ties or allegiance to them!!!) VALIC is offering a rate of 1.5% in their Fixed Account Plus option in their Portfolio Director Fixed and Variable Annuity.  While there are many variable options in the contract, you don’t have to use them – you can just use the fixed account.

1.5% MAY NOT BE THE BEST RATE IN THE WORLD, BUT IT IS COMPARABLE TO A 2 YEAR CD.  The benefit of this contract is that there is no surrender charge.  At all. Great flexibility.  It is an IRA so you can transfer other IRA’s or qualified accounts like a 403b or 401k into it.  It is essentially a short term resting place for your money in which you can earn 1.5%, instead of something like .25%.

THE CURRENT RATE OF 1.5% IS GOOD UNTIL THE END OF NEXT YEAR.  Then it starts earning another rate – probably lower.  Also, depending upon when your money hits your account, the rate might change.  For example, they may establish a new rate in June and the money that comes in during June will earn the rate established in June.

BUYER BEWARE.  You will have to fill out some paperwork to get the account going.  It might seem like a pain.  And VALIC may ask if you want to visit with a rep, if you have other assets you need help with, etc.  They have plenty of other products and investments to sell!  But stay the course.  Just open this account and don’t deal with an agent – at least not in person.  Also, when you eventually transfer funds out of VALIC to another account, you may be required to get a signature guarantee on the form, which can be a hassle.


MANY OLDER ANNUITIES ARE SIMPLY KNOWN AS FIXED ANNUITIES.  In this type of account, the insurance company pays an interest rate – there are no variable investments.   Many firms still offer fixed annuities.  You can invest in a fixed annuity to earn a stable, safe return on your money.  Much like CD’s, fixed annuities will have a surrender charge period.  They are not guaranteed by FDIC, however there are typically guarantees provided by each state.

A CLIENT RECENTLY SENT ME SOME UPDATED STATEMENTS.  She turned 70 and has plenty of money in after-tax investments and IRA’s.  She also has two fixed annuities that are almost 30 years old.  She has other ongoing income as well and relatively low expenses.

I WAS AWARE OF THE OLDER IRA ANNUITIES WITH KNIGHTS OF COLUMBUS.  However, I hadn’t paid much attention to them since we were concentrating on more pressing matters.  In casually glancing at her statements, I noticed that her KofC contracts offer a guaranteed rate of 3.5%.  Hmmm.  Interesting.

AT THIS POINT, I WAS CURIOUS TO KNOW IF SHE COULD TRANSFER MONEY INTO THESE ACCOUNTS AND EARN THE 3.5% RATE.  I was skeptical.  I fully expected a new surrender charge clock to start, but was not sure if the carrier would even accept new dollars.  We set up a time to call and verified that the contract will allow for new transfers which will initiate a 7 year surrender charge period.

MY CLIENT WAS DELIGHTED.  I am not a fan of extensive surrender charge periods.  But in her case she has plenty of money to access and will only transfer over a portion of her current IRA funds to this account.   Also, the surrender charge does dwindle over time and she does have access to 10% of the funds annually without charge.  She should not need to access these funds, though.

WHAT THIS COMES DOWN IS THAT SHE DOESN’T WANT VOLATILITY.   We talk about her investments and what she is comfortable with and, more than anything else, she wants stability.  This is what matters most.  Worse case scenario for her is that interest rates rise quite a bit in the next 7 years and she is stuck in a contract.  Should this happen, she can evaluate and decide to leave the funds where they are or pay a charge to transfer.

THESE EXAMPLES SHOW THAT IS WISE TO BE OPEN MINDED ON INVESTMENTS.  By and large, I think most should use annuities on a limited basis.  However, consumers can find opportunities in either new or old contracts that may match their investment objectives.  

FULL DISCLOSURE:  I am not an agent and don’t sell any insurance products.  How we receive our compensation is not in any way affected by whether or not our clients use an annuity to meet their goals.  (All of our clients pay us a fee directly or their employer pays PlanVision a fee for servicing their plan).  However, I do assist my clients in pursuing investment options that make sense for their situation.  

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