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April 9, 2014

Jonathan Tobin: Why Did Kerry Lie About Israeli Blame?

Samuel G. Freedman: A resolution 70 years later for a father's unsettling legacy of ashes from Dachau

Jessica Ivins: A resolution 70 years later for a father's unsettling legacy of ashes from Dachau

Kim Giles: Asking for help is not weakness

Kathy Kristof and Barbara Hoch Marcus: 7 Great Growth Israeli Stocks

Matthew Mientka: How Beans, Peas, And Chickpeas Cleanse Bad Cholesterol and Lowers Risk of Heart Disease

Sabrina Bachai: 5 At-Home Treatments For Headaches

The Kosher Gourmet by Daniel Neman Have yourself a matzo ball: The secrets bubby never told you and recipes she could have never imagined

April 8, 2014

Lori Nawyn: At Your Wit's End and Back: Finding Peace

Susan B. Garland and Rachel L. Sheedy: Strategies Married Couples Can Use to Boost Benefits

David Muhlbaum: Smart Tax Deductions Non-Itemizers Can Claim

Jill Weisenberger, M.S., R.D.N., C.D.E : Before You Lose Your Mental Edge

Dana Dovey: Coffee Drinkers Rejoice! Your Cup Of Joe Can Prevent Death From Liver Disease

Chris Weller: Electric 'Thinking Cap' Puts Your Brain Power Into High Gear

The Kosher Gourmet by Marlene Parrish A gift of hazelnuts keeps giving --- for a variety of nutty recipes: Entree, side, soup, dessert

April 4, 2014

Rabbi David Gutterman: The Word for Nothing Means Everything

Charles Krauthammer: Kerry's folly, Chapter 3

Amy Peterson: A life of love: How to build lasting relationships with your children

John Ericson: Older Women: Save Your Heart, Prevent Stroke Don't Drink Diet

John Ericson: Why 50 million Americans will still have spring allergies after taking meds

Cameron Huddleston: Best and Worst Buys of April 2014

Stacy Rapacon: Great Mutual Funds for Young Investors

Sarah Boesveld: Teacher keeps promise to mail thousands of former students letters written by their past selves

The Kosher Gourmet by Sharon Thompson Anyone can make a salad, you say. But can they make a great salad? (SECRETS, TESTED TECHNIQUES + 4 RECIPES, INCLUDING DRESSINGS)

April 2, 2014

Paul Greenberg: Death and joy in the spring

Dan Barry: Should South Carolina Jews be forced to maintain this chimney built by Germans serving the Nazis?

Mayra Bitsko: Save me! An alien took over my child's personality

Frank Clayton: Get happy: 20 scientifically proven happiness activities

Susan Scutti: It's Genetic! Obesity and the 'Carb Breakdown' Gene

Lecia Bushak: Why Hand Sanitizer May Actually Harm Your Health

Stacy Rapacon: Great Funds You Can Own for $500 or Less

Cameron Huddleston: 7 Ways to Save on Home Decor

The Kosher Gourmet by Steve Petusevsky Exploring ingredients as edible-stuffed containers (TWO RECIPES + TIPS & TECHINQUES)

Jewish World Review

What to Ask Before Buying an Annuity

By Cameron Huddleston





If more people understood these confusing products, fewer probably would be sold. Find out what you need to know


JewishWorldReview.com | Heard the stories about people who are sold an annuity but later aren't sure what they've invested in?


Michael Furois, a financial planner in Chesterton, Ind., has heard plenty of complaints from clients who were sold annuities before coming to him but didn't really know what they were buying. "It's a complicated product that most people don't understand," Furois says. "If people understood the ins and outs of annuities, there would be fewer sold."


Note that it's deferred annuities -- tax-deferred products designed for retirement saving -- that create most of the confusion, not single-premium immediate annuities. Deferred annuities make sense for some people. But to be sure they're right for you, learn the answers to these questions.

How do annuities work?

An annuity is an insurance product: You make a lump sum payment or series of payments, and the money grows tax-deferred at a fixed or variable rate (the accumulation phase). In return, the insurer agrees to make periodic payments to you for the rest of your life (the payout or annuitization phase). Annuities also have a death benefit (this is where the insurance comes in) that entitles your beneficiary to the value of your annuity or a guaranteed minimum, whichever is greater.


But there are lots of twists. You can't withdraw the money until you're 59.5 % or you'll be hit with a 10% penalty on earnings. Plus, you'll pay a surrender fee if you tap the annuity before a certain period laid out in the contract (usually seven years).


Another drawback: Earnings are taxed as income rather than at the long-term capital gains rate. And annuities usually charge more than 1% a year for the death benefit, but it pays off only if you die when your account has fallen below the minimum guarantee.

What type of annuities are there?

There's a whole slew of annuity products, but deferred annuities fall into three main categories:


Fixed annuity. You lock in a guaranteed rate of return for periods ranging from one year to ten years. Rates can fluctuate but will never drop below your guaranteed rate. You won't lose money, but you won't have the potential for growth you'd get by investing in stocks or stock funds.


If you meet the annuity-buyer profile, a fixed-rate annuity is worth considering now -- especially if you have low risk tolerance and a shorter time horizon for when you need the money.


Variable annuity. The money is invested in accounts similar to mutual funds. Just like investing in a regular mutual fund, you can see substantial gains or watch the value of your account plummet. But you'll pay higher fees for the annuity (more on fees below). If a variable annuity is cheap enough, it can make sense in certain cases.


Plus, your heirs will owe tax on the earnings built up during your lifetime (just as you would). Outside an annuity, the part of the inheritance attributable to unrealized capital gains would be tax-free.


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Equity-indexed annuity. Like a fixed annuity, you get a guaranteed rate and fixed payments with this product. But it provides more opportunity for growth because it's tied to an index such as the Standard & Poor's 500.

What are the fees?

With fixed and equity-indexed annuities, fees and commissions are factored in and lower your yield.


Variable annuities have a mortality and expense charge to cover the risk the insurance company takes on to pay you lifetime income. Then administrative and annual records maintenance fees are deducted. Annual fees average 3.5% -- more than double those of the average mutual fund. There's also a yearly contract charge of $25 or so.


And don't forget the surrender fee that applies if you withdraw money early. Fixed and equity-indexed annuities are subject to these fees as well. These penalties average 5.5% and generally phase out after you've been in the annuity for a few years.

Who should invest in one?

You shouldn't even consider investing in an annuity unless you are already contributing the maximum to other retirement plans, such as an IRA or 401(k). That's because those plans provide the same tax deferral as annuities but without as many fees. If you invest in an annuity inside a tax-advantaged account, you get no extra tax benefit.


The early-withdrawal penalty and surrender fees make an annuity useless for short-term saving. With a variable annuity, for example, you pay higher tax rates and higher expenses for the funds in the annuity than you'd pay for funds outside the annuity. You'd need to hold an annuity at least 15 years for the benefits of tax deferral to outweigh the extra costs (the breakeven point depends on your tax bracket and the fees).


So the ideal annuity buyer is someone making the maximum contributions to other retirement plans, who can live without the money until after age 59½, and who is in at least the 25% tax bracket to take advantage of the tax deferral. You also might be a good candidate if you're concerned about outliving your savings because annuities can provide a guaranteed stream of income in retirement.

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Cameron Huddleston is an online editor at Kiplinger's Personal Finance magazine.



All contents copyright 2013 The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency, LLC

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