This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Annuities: The Trojan Horse of Retirement

HUNT VALLEY, Md. ( TheStreet) -- I am a fee-only financial adviser, which means I can lead my clients to any investment on the planet if it is best for them. In addition, I am a fiduciary and must lead my clients to the best possible investment -- again, for them. Yet, despite opportunities to invest in some of the cheapest, commission-free annuities, I rarely recommend a client ever invest in them. In fact, I think it's a safe bet none of my colleagues who are also fee-only, fiduciary advisers would consider an annuity a wise investment.

Annuities are little ticking time bombs of taxable income that will either blow up in the hands of the owner or definitely in the hands of the heirs. In only slightly less violent imagery, annuities are like the Trojan horse, rolled inside your camp without understanding what's inside.

Annuities are like the Trojan horse, rolled inside your camp without understanding what's inside.

Annuities are typically sold with high fees to compensate for commissions to sell the investment. These commissions normally come with 4- to 15-year deferred sales charges, in essence handcuffing the client into the contract. It's a safe assumption that at least 90% of all annuity sales come with a commission -- the reason people buy them is because they are sold by a seller who is compensated for the sale.

Annuities are an easy sell because insurance companies are marketing wizards. They conduct enough focus groups and do enough market research to know what causes investor fear, grief and anxiety. They then attach a product feature dealing with each investor concern to lure the person to the product. For example:

"Tax deferral for everyone wanting to minimize taxes": Annuities are, for the most part, the only tax-deferred savings vehicle that is a benefit given only to the insurance annuity industry. There are far better overall planning ways to minimize taxes during your life and at death. (Municipal bonds are tax free and capital gains and dividends are also taxed at a flat 15% rate, unlike the ordinary income tax rates of the annuity.)

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs