Daniel Cullinane CPA p 848-250-9587
275 7TH Ave 7th floor New York , NY 10001 firstname.lastname@example.org
Chelsea / Lower Manhattan
By shopping around, you can find a top-rated insurer with a generous surrender charge. For a fixed annuity, the key is the strength of the insurer. Ask your agent if the company's claims-paying ability has been rated by Moody's, Standard & Poor's or Duff & Phelps; insist on either AA or AAA ratings.
Don't choose a fixed annuity just because the yield is high. Yields can change over time. In fact, there are three types of fixed-annuity yields:
Recommendations: Check an insurer's history of renewal rates as well as its financial strength.
For variable annuities, the insurer's strength isn't so important because variable annuity accounts are separate accounts, not commingled with the insurer's funds and not vulnerable to its creditors. Instead, you want a variable annuity with a good performance record, especially in its stock funds. Low fees can make a difference, too. No-load mutual fund families such as Vanguard, T. Rowe Price and Charles Schwab offer variable annuities with relatively low fees and expenses.
Variable annuities are a tax-sheltered way to invest in mutual funds, but they have higher fees than mutual funds. The conventional wisdom is: A mutual fund with securities earning 10% a year will return 9% to investors, after expenses, while a comparable variable annuity will credit investors with 8%. However, the conventional wisdom may be wrong. Variable annuity separate accounts may outperform mutual funds in some circumstances because of the following factors:
With Nationwide's Best of America annuity, for example, in the past you've been able to choose among funds managed by American Century, Credit Suisse, Dreyfus, Fidelity, Janus, J.P. Morgan, Oppenheimer and Van Kampen. Many other variable annuities offer stock funds managed by the same people who manage mutual funds with four-star and five-star ratings by Morningstar, Inc.
UPFRONT BONUSES AND LONG-TERM CARE
As variable annuity issuers compete for investors, they are adding new features: for example, bonus annuities and long-term care insurance.
Bonus annuities put extra cash into your account when you sign a contract. For example, if you're entitled to a 5% bonus for every $10,000 you invest, you receive $10,500 in your account right away. Nonetheless, bonus variable annuities usually have drawbacks:
Therefore, if you already own a variable annuity and are satisfied with it, you're probably better off staying put. If you're shopping for a new variable annuity, don't buy a bonus annuity before comparing it with other types, perhaps a low-cost version from a company such as TIAA-CREF.
A bonus annuity may make sense if you want to upgrade from an older annuity where surrender charges still apply. Similarly, a bonus annuity might work if you have been locked into a fixed annuity and want to switch to a variable annuity for potentially greater returns. In these situations, the bonus can offset the surrender charge incurred in switching annuities.
Long-term care (LTC) insurance may be offered as an added feature with some variable annuities. In some cases, you are guaranteed at least a return of your principal, through annuity payments, and a single upfront premium buys a paid-up LTC insurance policy as well. Thus, you can receive an income from the annuity and LTC benefits at the same time.
Some variable annuities take other approaches to long-term care. They may allow you to make withdrawals for needed care, free of surrender charges, and gain access to elder care information as well as discounts from retain providers.
These features have been added to variable annuities in the past few years. Other products are likely to appear, offering still more benefits, as the demand foe LTC coverage increases. If you're interested in such a package, visit the Nationwide and John Hancock web sites (www.nationwide.com and www.johnhancock.com) and talk with your financial adviser.
LEARN BEFORE YOU LEAP
Variable annuities generally provided investors with satisfactory returns during the bull market of the late 1990s. However, during 2000-2002, and again in 2008-2009, many equity subaccounts lost value.
During the bear market, variable annuities began to downplay performance and emphasize guarantees. Thereforem you (and your beneficiary)have some protection against poor subaccount performance. Nevertheless, you should look for variable annuities with subaccounts that have performed relatively well.
Caution: You don't necessarily want the fund that ranked No. 1 in the past; that's not a reliable indicator of future performance. But you do want to see a strong long-term record.
Mornignstar Inc. publishes the Lipper and Morningstar Variable Annuity Report and up-to-date variable annuity ratings. For more information, go to www.morningstar.com
You can also track past performance through your financial adviser. Just make sure that you have access to a stock fund with a good track record before investing (or keeping your money) in a variable annuity. Also, keep monitoring its performance after you invest. If the fund you're chosen heads south sometime in the future, you may want to switch to a better-performing annuity.