These two articles do a good job explaining the pros and cons of variable annuities in detail.
I got asked the other day what I had against annuities. Let me first explain that my issue has more to do with variable annuities over fixed annuities. Fixed annuities can serve a legitimate purpose in a retired individual’s portfolio. (There are options that may be better though). I do not wish this blog entry to take up too much of your time because if you do a Google search and look up “variable annuities” you will find other people have already written about this topic. What I do want to address in this entry is 1) the proper location of one’s investments and 2) the tax consequences of investing in a variable annuity.
Too many tax professionals do not have a good sense of the investment side of an individual’s financial life and too many investment professionals do not have a good sense of the tax consequences of the recommendations they make. Have you ever wondered why when you talk to most investment professionals they always lead with the disclaimer that you need to discuss with your tax professional the tax consequences of the recommended investments? Is this a CYA (cover your assets) because they are abnegating a large portion of being the trusted financial adviser you thought they would be?
I have noticed a trend over the last year with people I have spoken to about their financial situation. The common theme I keep hearing is safety and security. Because of this trend, our firm has decided to promote this theme throughout all of the literature we give to prospective and current clients. It is the theme of financial security!
I think people have been very humbled over the last year. A paradigm shift has and is occurring and people want to know that everything is going to be okay. The financial philosophies they used to old true have changed (or they have perceived them to have changed). The financial professionals and/ or politicians they thought would help them have at many times only made their situation worse. It is my opinion that people have been forced to take a step back and reevaluate all they thought to be true, especially in regards to their financial life, because of the failure of so many financial institutions, corporations and the government itself.