Should you get a variable annuity when you retire? The company I work for hopes you will, but many financial advisers, gurus, and authors steer people away. The reason is simple — the benefits in the form of gains don’t outweigh the fees and diligent investors can manage their retirement money in the form of index mutual funds, at least with a long-term time horizon.
Ben Stein holds a differing opinion. He is a fan of variable annuities in moderation. He admits that only a portion of a portfolio should be invested in annuities in order to ensure a modicum of guaranteed income. Here are his reasons:
* Variable annuities allowed his parents, both economists but not great investors, to retire comfortably.
* Some annuities will “lock in” your stock market gains to guarantee you won’t lose your money. Of course, the stronger the guarantee, the higher the fee.
* Old people get Alzheimer’s. Even skillful investors can lose their ability to control their portfolios and can benefit from a regular check.
Ben admits that individuals who are successful at investing and continue to be through retirement can manage to perform better investing on their own. He is thoroughly convinced that most people should consider putting at least a portion of their savings into annuity products when they retire.
I’ve generally been strongly against variable annuity products, especially after hearing story after story of elderly people being encouraged to enroll their life savings into products from which they would be unlikely to receive a benefit worth the fees. I do see Ben Stein’s perspective and perhaps annuities would be worthwhile for some individuals in varying degrees.
Why Ben Stein Loves Annuities [Money Magazine video]
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