Copyright 2016 by AnnuityGator.com Independent Annuity ... · Over the years, variable annuities have been sold more than any other type of annuity. According to the life insurance

Copyright 2016 by AnnuityGator.com Independent Annuity Reviews. Phone: (888) 4402468 1

2016 New And Updated Independent Consumer Report

The Truth About Variable Annuities 8 Cautionary Warnings That You MUST Be Aware Of

Plus Discover The 10 “LittleKnown” Variable Annuity Fees That May Have A Devastating Impact On The Security Of Retirement

Over the years, variable annuities have been sold more than any other type of annuity. According to the life insurance and market research association LIMRA in their most recent 2015 report, variable annuity sales in the past have accounted for over 60% of total annuity sales. So it’s no surprise to us that many of the people who visit AnnuityGator.com do so because they are being steered toward the purchase of a variable annuity. Despite being the number one most popular type of annuity sold, many financial experts consider some variable annuities to be problematic for a number of reasons which we will address in this article. For now, here are just a few harsh sound bites about variable annuities:

“No variable annuities, especially in a retirement account.”

Suze Orman, #1 on the Investment Hate List in her bestselling book, The Laws of Money, the Lessons of Life.

“You rarely find me so deeply angry at a common investment product that I dream of blowing it to smithereens.

Jane Bryant Quinn, Newsweek article on Variable Annuities

“High fees, low flexibility, and horrendous tax treatment make Variable Annuities less attractive than ever, except to people who sell them.”

Liz Pulliam Weston, MSN Money

“I cannot imagine a situation where I’d recommend a Variable Annuity.”

John Biggs, former Chairman of TIAACREF

“Variable annuities are sold more aggressively than fake Gucci handbags on the streets of New York.”

SmartMoney.com, 9/24/2004


The History of Variable Annuities For such a popular investment, why do variable annuities receive so much criticism? Let’s take a moment to better understand how variable annuities came into being and how they are built.

Variable annuities were an ideal investment in past decades.

In the late 1980s, the maximum that you could contribute to a 401(k) plan was $7,000, and after the stock market crash of 1987, the markets quickly rebounded toward record highs. What do these two incidents have to do with variable annuities? First, this low limit on taxdeferred savings vehicles forced many people to place their aftertax income inside investments that were taxed at regular income tax rates. For the average investor, there was no way around the tax on capital gains, which meant that for most of the market boom, those gains were being taxed as ordinary income. Not only that, but if you wanted to move from one investment to another, you would also have to pay taxes on the gains you had received along the way. What did that mean? Suppose your investment of $100,000 grew to $200,000. You would then have to pay $28,000$36,000 in taxes just to move your money into another investment.


Insurance companies saw this problem as an opportunity to introduce the variable annuity, with investment features they described as the perfect retirement vehicle. Variable annuities allow you to select from a variety of mutual fundlike investments called subaccounts. What makes investing in subaccounts different than traditional mutual funds is that you can move from one fund to another without having to pay taxes until you actually withdraw money from the funds. Variable annuities became the preferred investment for highincome earners who had already maxed out their 401(k) or IRA contribution limits, and had plenty of savings to risk their money in the ups and downs of the stock market. A variable annuity (like all deferred annuities) allows money to grow tax deferred, so investors don’t have to pay taxes on the gains until the money is withdrawn. Variable annuities make sense when the market is gaining 1000%.

Having a variable annuity during the bull market allowed investors to keep their gains without having to pay taxes, thus allowing more of their money to be reinvested. However, in order for the investor to have access to a high growth potential within their variable annuity, the insurance company would charge fees. This fee gave protection to the income side of things. In today’s global economy, however, it’s getting harder and harder to give investors who stay in the market income guarantees. The variable


annuity made more sense during the 80s and 90s, when the market wasn’t as volatile, whereas today it’s typically more expensive to own and not as effective at creating income as compared to other annuities. We have identified the following 8 Variable Annuity Warnings that you should be aware of before purchasing the variable annuity as part of your retirement portfolio.


8 Variable Annuity Warnings Warning No. 1: You can lose all your money.

The most obvious concern we have with variable annuities is that your money is not guaranteed and is exposed to the stock market. A variable annuity cannot guarantee the deposit you put in, nor can it guarantee the gains along the way. For a 35 to 40yearold investor, heavy market losses may not be as big of a concern because they still have time for their money to rebound and, more importantly, they are still saving their money instead of spending it. However, for an investor approaching retirement or already retired, stock market downturns can have devastating financial consequences. Warning No. 2: Variable annuities may be very expensive to own for today’s investors.


It’s important that we address the single most important aspect of variable annuity contracts: the fees buried within the prospectus. We have identified the top 10 variable annuity fees that you should be aware of . . . so keep reading. The typical prospectus is between 70 to 150 pages in length, and has countless disclosures and terms. It’s no wonder that it can be incredibly difficult to identify and calculate all the fees buried within the contract.

Before we reveal how you can easily calculate the fees within your variable annuity, let’s take a closer look at how variable annuities are sold. Many variable annuity buyers are sold on the idea of buying mutual funds through the insurance company, instead of going right to the source. The average mutual fund costs .75%, while according to a 2009 Morningstar annuity expense analysis report, the national average of all variable annuities is 3.61% with some fees that go as high as 5% and above.

Let’s take some time and review the other fees contained within a variable annuity so you can calculate for yourself how much you are paying. The first charge is the M & E fee, which stands for Mortality and Expense. This is a risk charge with fees that average 1.25% according to LIMRA (Life Insurance and Market Research Association).


The next type of fee is the general administration fee (or admin fee), which is usually around .15%. When you add benefits such as an income rider, death benefits, or long term care, you can expect to pay an additional 0.6 to 1.9% in fees.

All of these fees don’t even include the fees that go along with the mutual funds inside the contract. The mutual fund subaccount fees range from 0.5% to as high as 3%. Unfortunately, if you were to call up the insurance company you may be told you’re paying less than you are actually paying.

The only way to know for sure is to review your entire prospectus with a fine tooth comb and dig out each fee inside of each fund that you’re invested in. This is really the only way to calculate exactly how much you’re paying.

The insurance company is only required to tell you over the phone about the M & E, general admin, and income rider fee. They will also report on any sales charges or surrender fees. If you want to know the subaccount fees you’re paying, you may be directed to read your prospectus.

You are required to pay the contract fees, regardless of how your variable annuity performs.

What’s most concerning about fees is that if you lose any of your money, you will still be required to pay the contract fees. Unfortunately, many of the investors we speak to every day aren’t aware of all the standard fees that they are paying inside their variable annuity (or ANY annuity for that matter).

Many variable annuity owners are not aware of how much they are paying in fees. In addition to these fees, there are other drawbacks to owning variable annuities that aren’t often advertised, so let’s continue.

Warning No. 3: Variable annuities offer limited investment options.

When you buy a variable annuity, you’re actually buying from a limited selection of mutual funds inside the annuity contract...funds which are NOT guaranteed. If you were to buy mutual funds directly from the different companies out there (such as


Charles Schwab, TD Ameritrade, Fidelity or Vanguard), you would have a virtually unlimited list of choices.

Inside a variable annuity, your investment options range anywhere from 90 to a few hundred funds to choose from. The mutual funds within a variable annuity are actually called “proprietary subaccounts” because oftentimes, the insurance company creates contracts with mutual fund firms to develop a specific mutual fund for their variable annuity contract.

Before we move on to our next warning, let’s just take a minute to visit the potentially damaging effect of fees on fund performance...

It’s important to understand the devastating impact of fees on the security of your money and retirement future.

The graph on the previous page is charting the performance of the S&P500 over the last 13 years, and as you can see, it’s been a bumpy road. We have charted two trend lines to track the performance of an initial deposit of $100,000 back in 2000. The blue line represents the value of your $100,000 over the last 13 years with zero fees, while the red line represents a 4% annual fee.

As you can see, there is an approximately $65,000 difference between both lines, due to the huge impact of fees on the money’s compounding growth. Instead of getting a consistent rate of return, you would actually have less money than your initial deposit 13 years ago!


We like to compare the impact of fees to having a heavy trailer behind a bicycle on a cycling trip.

You’ll have the hardest time riding uphill while towing a heavy trailer. Conversely, when you’re going downhill, the heavy trailer will be pushing you down even faster. The same thing is true inside your annuity when you attach those fees to your account balance.

Fees in your contract restrict the growth of your money when the market goes up, and they push you down even faster when there’s a market decline.

So if you own a variable annuity or are being sold one right now, you’ll want to pay close attention to the following: Here Are the Top 10 Questions to Ask About Your Variable Annuity: 1. What is the Mortality and Expense (M&E) fee? 2. What is the administration fee? 3. How many subaccounts do I have, and what is

the fee for each? 4. What is the contract maintenance fee? 5. What is the fund operating expense fee? 6. What is the turnover fee? 7. What is the mutual fund fee? 8. What are the transaction fees? 9. What are the rider fees? 10.How much is the surrender charge fee?


Warning No. 4: You can lose all your benefits.

The SEC is the governing body that regulates variable annuities. According to the SEC’s 12page report, “Variable Annuities: What You Should Know,” there are five “caution boxes,” the first of which indicates that you should consider the financial strength of your variable annuity’s insurance company, because it may affect their ability to pay the benefits that you were sold.

Even though each variable annuity benefit comes with an associated fee, the following “guaranteed” benefits are NOT protected:

death benefit guaranteed minimum income benefit longterm care benefit or amounts you have allocated to a fixed account

So, if you look at your policy and it says, “guaranteed death benefit” or “guaranteed” minimum benefit (GMIB), or long term care benefits, these may NOT be protected, and neither is the money you choose to allocate into the fixed account.

The SEC cautions you to consider the financial strength of the insurance company because what happened in 2008 taught us that no company is too large to fail. In 2012, Forbes published an article that says “variable annuities looked to bail on their guarantees”. After the market crash of 2008, AXA Equitable stripped away their guaranteed death benefits and Hartford Financial took away their income benefit.

Hartford was the recipient of TARP money, of the Troubled Asset Relief Program, and they received the largest amount of “bail money.” If you carefully read the prospectus (350800 pages long) in these variable annuity policies, you’ll discover that there are guaranteed benefits that can be taken away at the discretion of the insurance company.

What’s really troubling about these contracts is the fact that the insurance company does NOT have to become insolvent to bail out on their guaranteed benefits.


https://www.sec.gov/investor/pubs/varannty.htm

https://www.sec.gov/investor/pubs/varannty.htm

http://www.forbes.com/sites/feeonlyplanner/2012/08/09/variable-annuities-look-to-bail-on-guarantees/




Warning No. 5: Guaranteed rate of returns are not what they appear.

The income rider has become an increasingly popular additional benefit to the variable annuity. The income rider option provides the investor a guaranteed rate, regardless of how the market performs. For example, let’s say your account will grow by 5 to 8% every year, guaranteed unless your funds perform better than 5 to 8%, in which case you would receive the higher of the two values. When your account reaches a specified high dollar value, your income rider will lock in that new dollar amount. Based on what we have found, the income rider benefit (from any type of an annuity) has been the most misunderstood feature of the annuity contract. Some sales agents may have misrepresented how the income rider benefit really works, leading to frustrated and unsatisfied clients.

You may have been sold on the idea of a variable annuity because you were convinced you were getting a 6% guaranteed rate of return. This might have led you to believe you could then afford to take risk some with your money. The problem is that that the 6% rate of return is really what we call the “funny money” account (more on that later) and NOT your actual account balance.

Many annuity owners don’t really understand how their income benefits work because of the way they were sold by their agent.

It’s important to understand that the growth rate associated with the income rider is not really a guaranteed rate of return on the account value, nor is the income Copyright 2016 by AnnuityGator.com Independent Annuity Reviews. Phone: (888) 4402468 12

account value representative of money that you can actually withdraw as a lump sum. The income account value (along with the age when you start receiving income and your life expectancy) is a dollar amount used by the insurance company to calculate how much income you will receive. Your actual account value (that represents money you can actually withdraw as a lump sum) is NEVER really growing at a guaranteed rate.

We like to use the term “real money” vs “funny money” to help annuity owners understand the difference between the two accounts. The cash value of your annuity is the dollar amount you would walk away with, should you choose to cash out of your annuity. The funny money is technically called the “Income Account Value” and it is the dollar amount used to determine how much income you will receive.

Keep in mind that income riders are designed for income, and NOT designed to grow a cash value that you can cash out later down the road. Some financial sales people are pushing variable annuities hard with the promise that you will get a 5 to 8% per year rate of return, guaranteed.

Are you being told the truth? Well, not exactly.

Getting 5 to 8% is a hypothetical number, or “funny money,” because it’s used to calculate the amount of the income payout, NOT a real return on your initial deposit that you can cash out. This is where variable annuities may be misrepresented, which can lead to investors having the wrong expectations about their variable annuity and its cash value.

Remember that you can’t guarantee the dollar amount that you have in a variable annuity because it’s prone to the ups and downs of the market (and Copyright 2016 by AnnuityGator.com Independent Annuity Reviews. Phone: (888) 4402468 13

all while you are paying fees for the privilege of those ups and downs :)

Warning No. 6: Many variable annuities pay less income than other products and oftentimes DON’T have joint payout.

If your main priority is getting the highest amount of income (with the least amount of fees), we have found other annuities with higher payouts than variable annuities.


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www.annuitygator.com/contact/

Furthermore, many variable annuities don’t provide spousal payout. If you’re married, how important is it for your spouse to have income should you pass away first? How important is it for you to know that the income strategy you set up with your advisor is going to leave a legacy (and an income) for your spouse? If this is important to you, then you’ll want to compare the income benefits offered by other types of annuities with those offered by your variable annuity.

Fortunately, some insurance companies are catching on and starting to add those joint benefits to their variable annuities.

Warning No. 7: You may be penalized if you withdraw your RMD from a variable annuity.

We have found this to a unique problem with variable annuities that you typically don’t find with other fixed index products. With some variable annuities, if you reach into your policy and you to take out one dollar (doesn’t matter how much or how little,) the insurance company may penalize you by not giving you your guaranteed rate of return.

We’re referring to the typical 5 to 8% guaranteed rate of return applied to what we call the funny money account which determines your income payouts.

To make things worse, you still may have to pay your variable annuity fees as usual even though your 5 to 8% increase was waived.


Warning No. 8: You may be required to wait up to 10 years before you can start receiving income payments AND you may have to annuitize your contract.

So what does annuitization really mean? Annuitization is when you convert the dollar amount you have in your annuity into a series of periodic income payments. It’s like converting a lump sum dollar balance into a pension.

The benefit to annuitization is that you’ll be receiving regular income payments for life. However, annuitizing your money is an irreversible decision that results in you losing control of your money, which applies to other annuities as well.


So do variable annuities ever make sense today? Back in the 80’s and 90’s, variable annuities were a useful investment tool because they gave investors a way to get in on tax deferred market growth for aftertax income. Today, a lot of variable annuities are being purchased with 401(k) and IRA money, which are already taxdeferred accumulation vehicles. This means that the investor who does this would be paying a fee for a benefit that they already had in the first place.

During the 80’s through the 90’s, you could expect to earn 30 to 50% market gains per year, therefore, a 5% variable annuity fee wouldn’t have the dramatic impact that it does today. There are other lowcost alternatives with far superior guarantees that many investors aren’t even aware of, which is why we launched Annuity Gator with its mission to publish objective annuity reviews to help you avoid making a costly or irreversible mistake and hopefully point you in the right direction.








In summary, here’s what you should be aware of with variable annuities:

Variable annuities have limited investment choices. Fees can total 4% annually and can go above 5%. You may lose all your money. Your guaranteed death benefits, income accounts (funny money) and other

addon benefits are only backed by the insurance company and can be discontinued at their discretion.

Payouts on “funny money” accounts are typically lower than other annuities and many contracts don’t have joint payouts.

You may be penalized if you withdraw your “RMD.” Some contracts force you to annuitize and WAIT to receive guaranteed income.

Keep in mind that every investment vehicle has its pros and cons, and there isn’t any one annuity (or any single financial product) that can provide EVERYTHING that you need in your financial plan. Your advisor should help you determine what your goals are in retirement and help you find the right lowcost financial products that fit into a sound financial plan. The bottom line is that every annuity or financial product out there is typically good at providing certain benefits and may be somewhat lousy at providing others. When it comes to financial planning for retirement, you need to find a lowcost financial option that doesn’t erode into your principal. When it comes to evaluating annuities, it’s the job of your advisor to help you distinguish between the good, the bad, and the ugly.

Get an objective second opinion on your variable annuity.




Maybe you already have an annuity that you feel stuck with, because of a surrender charge or other imposed penalties. Let us evaluate your annuity through our proprietary review process to determine if there’s a better alternative. In some cases, there are annuities that provide a bonus that can help “rescue” you from any surrender charges. If not, we’ll let you know either way.

Keep Reading On To See How We May Help You…


Get Your Variable Annuity Thoroughly Reviewed

Here at Annuity Gator we have helped numerous variable annuity owners in 4 simple steps:

1) We call the insurance company with you.

The best way to know for sure how much you’re paying in fees is to call the company with an unbiased retirement advisor (probably NOT the advisor that you purchase the variable annuity from) who understands your prospectus. We get on the phone together with the insurance company and go line by line through all the fees.

Since we’ve reviewed numerous variable annuities over the years, we know the right questions to ask regarding your prospectus and contract to find out exactly how much you’re being charged (particularly the subaccount fees, which are oftentimes the most difficult to find and tally up).

2) We double check the variable annuity’s reported fees.

In some cases, the variable annuity company is reluctant to share with us all the fees buried within the prospectus. Fortunately, we utilize a software developed by Morningstar that can accurately assess the fees within any variable annuity to ensure the insurance company is providing us with accurate numbers.

After analyzing the report, we actually go in and pull all the fees out of the variable annuity and check it against the information provided by the prospectus just to make sure that we are getting an accurate assessment of all the fees that sit in your contract.

3) We assess the impact of fees on your annuity’s performance.

Using specialized software, we can test your annuity’s performance against other annuities out there to ensure you’re getting the best deal.

4) We provide you an objective recommendation.

Based on our findings, we’ll provide you with our objective evaluation, and point you in the right direction. Oftentimes, we are able to find you a superior alternative to what you currently have, while on other cases, it may not make sense to change anything at all. Either way, you will know what your options are, and you can make an informed decision.


How Annuity Gator Helps Investors... Our experience has shown us that much of the annuity advice (and financial advice, for that matter) given to investors today may be flawed. The repercussions of this flawed advice are felt most strongly by you, the investor.

The costs you are paying may be too high for benefits that don’t serve you as well as other benefits might, and all too often, we witness firsthand how poor advice hurts investors more than it helps.

Don’t let this happen to you. This special variable annuity report, and everything we do, is designed to help.

We launched AnnuityGator.com as a simple blog website that publishes objective and independent reviews of the most popular annuities being sold today.

What started out as a simple mission to provide unbiased annuity information so individual investors like you could confidently made good decisions with their money has really taken off.

Wonder why we call our website Annuity Gator? Because we do the Annuity Investigations so you don’t have to ;).

We think annuities can be a great part of a retirement income plan – when used correctly. Unfortunately, there seems to be a disconnect between advice that is actually good for people and the advice most people get when it comes to annuities.

That’s why we lay all the facts out so you can easily see if a particular annuity is a good fit for you. Some annuities are better than others, and all annuities are different.

We do the “investigations” so people know what they’re getting into before they make what is often a large and often irreversible lifetime commitment.

If a particular annuity stinks, we’ll let you know. If it’s great, we’ll let you know that, too. If an annuity works well for one particular situation, but not for anything else… you guessed it, we’ll let you know.


We have discovered that the more goodwill we share through our website, the more people we can help.

Oftentimes many of our web visitors become happy and lifelong clients, but whether that happens or not, our website’s mission remains strong: we help consumers make informed and clear decisions when it comes to purchasing annuities.

If you have questions and would like to talk to a retirement planning expert, we have trained a team of quality, experienced advisors and annuity agents that would be happy to chat with you.

Phone calls are always free, 100% confidential, and there is never an annoying highpressured sales pitch, just good, quality advice to help point you in the right direction.

If that sounds good to you, we invite you to drop us a line.

We help investors all over the country build sound financial plans that help reach goals and protect assets, all with the lowest risk and lowest costs possible.

When we chat with folks, we ask questions like:

“What’s most important to you?”

Principal protection Reasonable rate of return Return of my money Lifetime guaranteed income

Based on your answers, we can find help you find the best annuity with the highest guarantees.

Since insurance carriers change their annuity terms from time to time, you need to compare one annuity against other top annuities to ensure you’re receiving the best benefits and income with the highest guarantees right now.

We can show you a visual and a stepbystep demo of our proprietary annuity review







process that can calculate all the fees that may not be apparent in the prospectus and help you with your annuity options.

We firmly believe that the financial industry has gotten too expensive, too complicated, and too out of touch with actually helping people reach their goals.

We want to change the status quo and start a high quality, low resultsdriven financial planning revolution.

Do you still have some questions on whether your variable annuity is right for you? Are you concerned that you are paying too much in fees?

We’d be happy to help. Click the link below, and we’ll do our best to point you in the right direction.

Click Here To Find Out Exactly How Much You Are Paying In Fees!

Get An Objective Second Opinion On Your Variable Annuity And Test Your Annuity

Against Numerous Others Using Our Proprietary Review Process





https://docs.google.com/document/d/1qNG6zv4DJOFHrcWj5yaOapY2rE3lT0Vz_cIIMd-jN0I/edit?usp=sharing











Our Closing Thoughts

We sincerely hope this report was enjoyable and educational for you. We would love your feedback. If you have suggestions for improvement, or words of encouragement, please reach out to us at [email protected] or fill out our contact us form.

Some annuities can be complex, confusing, and dangerous when used incorrectly. By reading this exclusive consumer report, you are now armed with knowledge that will help make you a better investor.

If you know anyone else who might benefit from this free report, feel free to send them a copy. Or better yet, just have them go to our website at www.AnnuityGator.com to request their own.

It is our wish that you do the best you can with the resources you have. Never assume there is only one correct way to do anything, including the use of annuities. Continue to educate yourself, and surround yourself with those who care about your financial wellbeing and put your interests above their own (especially those who espouse financial advice).

Sincerely, The Annuity Gator Team :) P.S. Got questions or comments? Feel free to give us a call at (888) 4402468 No Pressure. No Hype. No Shenanigans ;) Just The Straight Answers... PERIOD.


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http://www.annuitygator.com/


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Disclaimers AnnuityGator.com offers independent annuity product reviews. Nothing on this website is a recommendation to buy or sell an annuity. All content is for educational purposes only. No product companies have endorsed the reviews on this site, nor is AnnuityGator.com compensated to write reviews. Reviews are posted at the request of readers so they could see an independent perspective when breaking down the positives and negatives of specific annuity contracts. Before purchasing any investment product or annuity be sure to do your own due diligence and consult a properly licensed professional should you have specific questions as they relate to your individual circumstances. All names, marks, and materials used for the reviews on this site are property of their respective owners, and not those of AnnuityGator.com. Annuity product guarantees rely on the financial strength and claimspaying ability of the issuing insurer. Annuity riders may be available for an additional annual premium that can provide additional benefits and income guarantees. By contacting us you may speak with an insurance licensed agent in your state, and you may be offered insurance products for sale, but again, don’t worry you won’t be pressured or hassled to buy anything.


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Copyright 2016 by AnnuityGator.com Independent Annuity ... · Over the years, variable annuities have been sold more than any other type of annuity. According to the life insurance