Annuities in a 401K? Seems like a bad idea for younger people? (annuity, IRAs)

[aneftp]

My previous finance guy died late last year (from brain cancer); he was young 44 years old and it came rather unexpectedly.

Anyway I have a new finance guy so I am still trying to feel him out. Finance guys has been in the business for 20 plus years and I've checked out his track records and he seems like he knows what's he's doing.

However, he's been giving me options more about Annuities, specially John Hancock. I know a few things about annuities. This one in particular is variable and has a guaranteed payout of around 7%.

But the fees are worrisome to me. If I want to pull out of the contract, there are surrender fees that are around 5%. Plus I'm younger (35) and kinda of find it redundant to invest in an annuity in a tax deferred account. Don't you guys agree? Maybe if I am older (closer to 59 1/2), an annuity may make sense.

So are annuities a stupid idea for tax deferred account? Are annuities not a good idea for younger people like me? I feel like I should follow my gut feeling. I don't put all my eggs in one basket. But this annuity options seems to have too many cons compared to pros.

[chet everett]

The analysis of an annuity inside a tax deferred account is very very difficult to justify. I would probably try to get another advisor unless there was some pretty far out of the ordinary circumstances...

[aneftp]

Originally Posted by chet everett

The analysis of an annuity inside a tax deferred account is very very difficult to justify. I would probably try to get another advisor unless there was some pretty far out of the ordinary circumstances...

Ok. Thanks. I signed up for a John Hancock Variable Annuity last week. I was looking through the prospectus I just received in the mail. And there are a lot of fees involved. Fortunately, there is a 30 day "free look" where I can cancel the contract. I live in Florida and it has a 30 day "free look" for insurance and annuities.

I'll give me finance guy a call tomorrow to cancel.

Some of the senior partners at my work (they are all high net worth), invest in annuities even in their retirement accounts. They say they do it for asset protection. They say it adds another layer of asset protection. But they are much older than me (in their 50s).

I think the recent federal rulings the past 5 years have determined the majority of retirement accounts to be safe from creditors in case of bankruptcy. So maybe my older partners used annuities before the federal courts ruled on these retirement accounts? My previous finance guy who past away set me up in a "safe harbor" IRA last year. It's one of the newer IRA's that Congress set up in 2002/2003. It's very confusing how to run so I have to use a finance person to run this IRA. My previous SEP was so simple to use.

The more money you make, the more complicated life gets.

[golfgal]

I don't know that at 35 an annuity is the best idea for you. The one upside is that you lock into the payout rate based on your life expectancy now vs if you start one at 55-meaning you will get a higher monthly payout from the annuity if you start one now then if you wait. John Hancock annuities are VERY expensive and have REALLY long surrender periods. I would look around some more if you want an annuity. Generally the only time an annuity makes sense for someone your age is if they have maxed out all other options.

Now, putting a couple thousand into an annuity now as a "placeholder", a place to put money later, isn't a bad idea. I just wouldn't put a lot of money into an annuity. We have an annuity like this now.

Now, down the road if you have a non-qualified annuity, you can use that money tax free to pay for long term care insurance and long term care expenses-which is a good tax saving strategy so opening an annuity with that in mind isn't a bad idea.

[aneftp]

Originally Posted by golfgal

I don't know that at 35 an annuity is the best idea for you. The one upside is that you lock into the payout rate based on your life expectancy now vs if you start one at 55-meaning you will get a higher monthly payout from the annuity if you start one now then if you wait. John Hancock annuities are VERY expensive and have REALLY long surrender periods. I would look around some more if you want an annuity. Generally the only time an annuity makes sense for someone your age is if they have maxed out all other options.

Now, putting a couple thousand into an annuity now as a "placeholder", a place to put money later, isn't a bad idea. I just wouldn't put a lot of money into an annuity. We have an annuity like this now.

Now, down the road if you have a non-qualified annuity, you can use that money tax free to pay for long term care insurance and long term care expenses-which is a good tax saving strategy so opening an annuity with that in mind isn't a bad idea.

Thanks for the advice. I canceled the John Hanock annuity 3-4 days ago. They are sending me back a check and I will immediately give it back to my broker since it's retirement money.

I am 35 and in the medical profession. I already carry malpractice insurance but you never know with lawsuits these days. I know annuities are generally protected from lawsuits.

I have most of my money in SEP-IRA but for this past year I am doing a Safe Harbor IRA. But the Annuity seems to be a waste of money in terms of fees.

The law is still very vague with SEP-IRAs and protection from creditors. I thougght with the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 SEP IRA are protected as long as it's under 1 million? Maybe it varies from state to state.

But from your response and others, annuities in a retirement account do not seem to be the best options for me.