Variable Annuities are Dreadful Investment Vehicles

From: Fred Schiff <f.schiff@ieee.org>
Subject: Variable Annuities are Dreadful Investment Vehicles
Date: Fri, 22 Aug 1997 22:31:29 -0400 (EDT)

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>From: linda_buchanan@icpphil.navy.mil
>Subject: variable annunities - right for me?

>     I am thinking a variable annunity might be what my financial plan 
>     needs at this point.  I am 15 years from retirement, fully 
>     participate in a 401k-type plan which is capped at 5% and 
>     annually contribute $2000 to a non-deductible IRA.  I do not
>     have insurance needs.

Frankly, variable annuities are dreadful investment vehicles.  They are
basically designed to make the salesman rich.  They have minimal tax
deferring benefits.  Better to use your 401K, pension plans, IRA, etc.
for that kind of tax deferring quality.  

Paraphrased from Andrew Tobia's "Only Investment Guide You'll Ever Need"
1. annuity income is fully taxed as you withdraw it
2. good rates may only be for 1 year
3. locked in until 59 1/2, with 10% penalty and surrender charge
4. since they're bought for the long term, why not buy stocks instead
5. how good are they anyway?  you're locked into them when they are chosen
6. heavy sales fees drag down performance.
7. gains are taxed as ordinary income
8. must pay tax on it even if you die!

15 years is a *long* time away for retirement.  And who knows after 
retirement you might live a *long* time, when you'll need income but
won't be working.

Stocks have typically performed better (over the LONG TERM) than other
investment instruments.  If you're scittish about picking stocks (lets
face it, its a mystery and you've gotta be lucky) or you don't have
that much to invest, go with a no-load mutual fund, and dollar cost
average into it every month.  Some mutual funds can be setup to take
a set amount of money straight from your checking account each month.


Fred Schiff (f.schiff@ieee.org)

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