Submitted by Anonymous on
My spouse recently left her employer and has about $200,000 in her 401K with this previous employer. A friend of ours who works for a brokerage firm spoke to us about doing either an IRA rollover or possibly investing in a variable annuity. He did explain that the costs were higher for the VA as apposed to the IRA, but we did like the fact that the VA was "guaranteed" to grow & have approximately a 4x payout from here initial investment of $200K in about 20 years. Any thoughts?
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tom replied on Permalink
Annuity Versus IRA
You should ask your friend or financial advisor to put the annuity
recommendation in the context of a broader financial planning exercise
that takes into account all of your relevant factors (e.g. age,
income, years until retirement, other assets, etc) and financial
objectives.
It really is impossible for anyone to provide you with
any sort of reasonable advice without a great deal more detail. Think
about taking a look at some personal financial planning software if
you'd like to play-around with this stuff on your own rather than
paying someone else. An example is ESPlanner.
The above said, a rollover IRA is not an investment vehicle--there are
typically investment options available through your custodian for the rollover assets (e.g. Schwab). As a result, there really should not be any/much cost associated with
the rollover custody.
On the other hand, a variable annuity can be very expensive.
Also, a rollover IRA is a tax advantaged savings vehicle. Annuities
are also tax advantaged. Often does not make much sense at all to use
a VA within a "qualified" (i.e. tax advantaged) account because you
don't get the full benefit of the annuity tax advantages.
As for the "4 X" return scenario, that implies an annual return of a
bit more than 7%. Ask your friend / financial advisor to share with you the
net return (after all fees and expenses) scenario for the VA.
Bottom line: do not rush into any annuity purchase without much more
research and input.