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Two Sides of the Variable Annuity Debate


The Wall Street Journal just published an interesting article asking “Are variable annuities good investments?”  Ellie Lowder and Lewis Altfest have different answers to this investment debate that has been around as long as variable annuities themselves.  Variable annuities are worth a look as pensions become less common and Social Security questions arise.  Most investors are trying to balance wanting a return on their investments with wanting to protect their money against market downturns that have reared their ugly head in the past decade.  Variable annuities have tax advantages and allow you to invest in the markets, with the option of receiving guaranteed income over your lifetime.  These investments have many proponents and opponents as you’ll see.

Retirement plan consultant Ellie Lowder says that yes, variable annuities are a good investment.  Uncertainty in the markets has made it so that people are more worried about keeping the money that they have rather than getting a return on that money.  With a variable annuity, you can protect your money and have some exposure and potential to get a return on your money.  She says that you can’t find the combination of investments offered by variable annuities anywhere else.  You also have the option to choose from many guarantees, including death benefits and guaranteed minimum lifetime withdrawals.  While these options cost more in fees, variable annuities are the only investments that give you these benefits along with the potential of gaining returns in a good market.  They give you the safety to take some risks in the stock market.

Dr. Lewis Altfest is a CIO and associate professor who doesn’t think that variable annuities are good investments.  He says they have the potential for yearly fees of 4% and doesn’t think these fees are worthwhile, even for the benefits received.  He also believes that while variable annuities have good tax benefits, qualified pension plans and mutual funds have a greater tax savings overall.  Some annuities are quite complex, and it takes a lot of research to understand all of their working parts.  While this is a valid concern, any reputable annuity expert should be able to assist you with all of the fine print.

Ms. Lowder recommends the use of variable annuities within the big picture of your retirement plan to offer you guarantees with market exposure.  Dr. Altfest dismisses the use of variable annuities altogether and recommends using a diversified investment portfolio.  It seems that variable annuities can be a helpful piece in the diversified investment portfolio, just a piece, but still an important one.

Written by Rachel Summit

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