Matching Investments With Goals
Nothing can be more financially and emotionally devastating in your retirement years than to experience large losses in your retirement investment account. Since social security alone is often not enough many retirees depend on their retirement investments to help support them through their golden
NEW ACCOUNT/CLIENT PROFILE FORMSIt is crucial that information on New Account/Client Profile forms is accurate and current. Too often, investors sign these forms without adequately reviewing them with the financial adviser. If you do not have a copy of these forms, ask for one and review them carefully.
These forms are important because they include information about you such as your investment objective, risk tolerance, income and net worth. This information provides a roadmap for you and your financial adviser regarding the types of investments that are suitable for your retirement account. Make sure you understand the investment objective and risk tolerance level checked on these forms. They should match your true investment goals.
These steps should help prevent your financial adviser from recommending unsuitable investments. If you do end up with investments in your retirement account that are not appropriate, having accurate information on these forms will help support the claim that unsuitable investments were sold to you.
VARIABLE ANNUITIESFrequently, variable annuities are not suitable investments for retired individuals. Unfortunately, they are vigorously and sometimes misleadingly promoted to senior citizens by large insurance companies and some financial advisers. The fat commissions earned by financial advisers are far too often the main incentive in selling these investment products.
Before considering a variable annuity, you should investigate and understand all the specific features along with the fees, expenses and tax issues involved. The following are a few points to consider:
*Variable annuities are strictly long-term investments.
*Most variable annuities have high annual fees and expenses.
*You will pay taxes on the earnings withdrawn at you regular income tax rate instead of at the capital gains tax rate.
*Withdrawals made within a specific period after your purchase will typically have a "surrender charge" deducted from the amount withdrawn.
*The "surrender charge" usually lasts for six to eight years after the purchase and starts high, typically 5-10%, decreasing each year until it reaches zero.
*You may not need the death benefit component in the variable annuity but you will still be charged for it.
*A variable annuity will provide no additional tax benefits over an IRA account.
*Tax treatment for beneficiaries of a variable annuity may not be as favorable as tax treatment for beneficiaries who receive stocks, bonds or mutual funds after your death.
The bottom line when considering buying a variable annuity is to make sure you understand all the fees, expenses, tax issues and features of that specific annuity.