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Questioning the Benefits of Annuity Transfers


If you have a financial advisor suggesting you purchase a new annuity with your old one, make sure to ask a lot of questions and research if that is really in your best interest.  That is the advice given by Karin Price Mueller of The Star-Ledger.  In “Biz Brain: Do I need a new annuity?,” a reader told Mueller that his financial advisor had recommended he use his 401k annuity to buy a new type of annuity product.  Mueller contacted a certified financial planner who said that he would be wary of the reasons the advisor is recommending the annuity transfer.  Annuities pay commissions that are relatively high depending on the product, so investors really need to do their research to make sure an annuity transfer is in their best interest.

There are questions that investors should ask their advisor before transferring annuities.  First of all, are the annuity fees higher or lower?  Are there guarantees with the new annuity that you are not getting with your current annuity?  Will you lose any death benefits or guarantees you currently have if you transfer to a new annuity?  What are the new annuity’s all-in fees?  It’s important to ask your advisor these questions and trust that you are getting an honest response.

Assuming that the reader who asked this question has a variable annuity, the new type of annuities his advisor wants him to purchase give investors a possible two ways to earn money.  They are tied to the market performance of your specific underlying mutual funds.  But they also offer guarantees around 5% to increase the value of your returns even in a low performing market.  As we’ve said before, you do pay for these guarantees or insurance against outliving your money.  For some investors it is worthwhile, for others it is not.  A guaranteed income stream lasting your lifetime can be very important for your portfolio.  This particular planner recommends 20% of your money be used for an annuity purchase.  That percentage can change based on individual situations, but the moral of this article is to make sure you understand your fees and the motives of your advisor.

Written by Rachel Summit

Follow Rachel, aka Finance Mama, on Twitter https://twitter.com/#!/financemama


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