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What
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Deferred Annuities
"Insurance companies add trivial insurance benefits,
disadvantageous tax Craig McCann, PhD and Dengpan Luo, PhD1 By definition, an Annuity is not an investment, it is a "stream of payments" better known as current income. A Deferred Annuity is a contract with a life insurance company that allows you to accumulate assets inside the tax deferred "wrapper" before the date you choose to exchange those assets for income. Once you exchange the accumulated assets for an income stream, you no longer own the assets, only the right to collect the income. Deferred Annuities may have a place in some investment portfolios, but have to be considered carefully in view of their usually heavy layer of costs. As life insurance contracts, all annuities, even so-called "low cost" annuities, bear some mortality and administrative expense that is not strictly investment related. In addition, the vast majority of annuities entail sizeable sales and distribution costs. Because of their relatively large cost burden, annuities often do not stack up well against other tax advantaged investment alternatives. For a brief but thorough discussion of variable annuities, you cannot do better than the presentation on the Securities & Exchange Commission's (SEC) site. . . . In addition, variable annuities often allow you to allocate part of your purchase payments to a fixed account. A fixed account, unlike a mutual fund, pays a fixed rate of interest. The insurance company may reset this interest rate periodically, but it will usually provide a guaranteed minimum (e.g., 3% per year). . . To see the complete article from the Securities Exchange Commission, go here.
The net result of equity-indexed
annuities’ complex formulas and hidden costs is that
Aegon
Ameritas
Fidelity
IDS Life Jefferson National
T Rowe Price
Lincoln Life
Real estate has long been the primary alternative investment, as it combines elements of both bonds, by providing rental income, and stocks, by offering equity ownership, but traditionally behaves differently than either. Individual investors are most often restricted to participating in real estate through real estate investment trusts (REITs), which exhibit much of the same type of market behavior as stocks. The real estate limited partnerships that flourished in the 1980s were typically based on tax avoidance and were all too often not otherwise profitable. Individual ownership of real property is not attractive to those investors not willing to pay the cost of "sweat equity," or who are unable to afford outside property management. TIAA Real Estate Account presents, then, a unique opportunity as it directly purchases and manages income producing properties in office, industrial, multi-family housing and retail sectors; and, as a pooled account in a variable annuity, passes on rental income and capital appreciation to its account holders.
Vanguard
1 (C)2006 Securities Litigation and Consulting
Group, Inc., 3998 Fair Ridge Drive, Suite 250, Fairfax, VA 22033.
www.slcg.com
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