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Hello, and welcome to Ask USAA.
My name is Scott Halliwell.
We have a question today from Suzanne in Maryland regarding
a subject that I'm seeing more and more of these days.
She wants to know should I put money in a variable annuity?
Here are some of the additional details about the
situation that Suzanne shared with me.
She said that she's 63 years old, and she has the following
investments.
She has $90,000 that she inherited from her mother.
She has $36,000 in mutual funds, and she has ,000 in an
old retirement account.
Now, another financial advisor has suggested to Suzanne that
she move all of these investments
into a variable annuity.
So she wants to know if I can offer any advice.
Well as a matter of fact, yes I can.
Before I do, though, I feel as though I should preface my
response a little bit with the following thought.
That is, if you've seen any of my other answers involving
variable annuities on usaa.com, then you probably
wouldn't be surprised to learn that any day now I'm expecting
a truckload of hate mail to be delivered to my doorstep from
the people who sell these products.
OK.
That might be a bit of an exaggeration.
But it's safe to say that I'm not a big fan of these things,
especially when the recommendation from the
financial advisor includes the words "move all of my
investments." Even so, let's take a little closer look at
the features of variable annuities as highlighted by
your financial advisor and see if this makes any sense.
Well, Suzanne, you said your adviser proposed a variable
annuity for three primary reasons.
First, was to provide your children with possible
principal protection in the event of your passing.
Is that possible?
Yes, that's possible.
Most variable annuities offer some level of death benefit
guarantee that provides beneficiaries with a set
amount even if the market has caused the value of the
contract to be less than that.
But, you pay for that.
Next, your advisor suggested that you might be able to get
some principal protection for you by
using a variable annuity.
Is that possible?
Again, yes it is.
Some variable annuities offer guaranteed minimum income
benefits that guarantee a certain level of growth for
purposes of providing future income even if the markets
don't cooperate.
However, calculating what you might receive in a way of
benefits is usually pretty complicated,
and you pay for that.
Finally, your adviser suggested that a variable
annuity might possibly provide you with income in 10 years
when you retire?
Is that possible?
Again, the answer is yes.
You typically can annuitize a variable annuity contract at
some point in the future.
But, depending on the particular product that you're
using, you pay for that as well by agreeing to a whole
host of restrictions, as well as possibly paying fees.
So, did you notice a consistent theme in my answer?
In case you missed it, I'll give you a quick summary.
Variable annuities can offer many benefits, but you're
gonna pay for them.
In fact, this is generally known that these products have
pretty high fees compared to the other alternatives that
are out there.
Can they be useful in the right situations?
Sure.
I've even recommended them myself from time to time in
the past when it was appropriate for the customer
circumstances.
Finally, Suzanne, I'd like to offer you this thought.
Be very cautious when working with any financial advisor who
suggests that you put all of your investment dollars into
one product.
Granted, I don't know the full story here and maybe my
overprotective side is unnecessarily sounding the
alarms, but this advise sounds a bit suspect to me.
I know it would involve a bit more work on your part, but I
highly encourage you to speak with another adviser and get a
second or maybe even a third opinion about
what you should do.
In the meantime, I hope this information I
provided helps you out.
Thanks so much for the question, and best of luck to
you in deciding what to do.