September 28, 2015
Actual Case Study from September 21, 2015:
“Michelle” (we’ll call her), a retiring Portland area public school teacher, came to our office for a complimentary evaluation of her financial situation including two small variable annuities promising 5% and 6%. These had been purchased six years ago through a School District approved vendor.
At purchase Michelle had asked the agent what each annuity would cost her in fees and was assured the fees were “minimal.” We agreed to analyze all of her assets but began by calling the nationally-known annuity companies’ customer service lines to clarify her choices for annuity retirement income.
We discovered:
Annuity A-client paid $53,000; Internal fees client pays every year $1,272 (2.4%); Agent’s 5% commission = $2,600;
Annuity B-client paid $37,000; Internal fees client pays every year $1,295 (3.25%); Agent’s 6% commission = $2,220
Annuity A was purchased for over $53,000 and had earned only $88 total over the last six years.
Michelle’s money was going to be locked up for ten years. The policies limited the 5% and 6% promises to restricted time periods, did not cover the life of the contract, and would be canceled for early withdrawals. We counseled that there are many kinds of annuities and/or other products that may have had better or worse fees and returns. Being better informed now, Michelle is in a better place to make decisions about her future.
By Bruce Porter, co-owner and founder of Retirement Income Advisors.
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