AboutBruce Julien Expertise I can answer questions on and raise issues clients overlook in the areas of Estate Planning as far as taxes and distribution flow problems, Asset Management as far as appropriateness of assets and allocations for a desired goal and the value a consumer gets for their costs, Tax Planning related to Income and Estates, and Insurance/Annuity questions particularly in light of suitability to the consumer.
Experience I became a CPA in 1991 and began offering financial advice in 1992. I am a Registered Investment Advisor which means I sign off on putting clients' interests first in a fiduciary role.
Education/Credentials BA in Accounting, University of Maryland 1990
I need you to please advise me regarding the appropriateness of a proposed investment. I am 65 years old, have been retired for 10 years, and the money for the investment is currently in an Annuity (no surrender charge) and has a charity as the named beneficiary. The amount represents about 9% of my total portfolio, and I do not need the money for ongoing expenses.
I could invest the money through a local agent into a fixed annuity with American Investors Life Insurance Company located in Topeka, KS.
This company has extremely good Moody and AM Best ratings. The investment is guaranteed to produce a minimum 8% annual return on the "cash" (non-equity) part of the investment, and the company will add a 10% bonus to the investment amount immediately if I select an annuity term of 10 or 12 years. The company does pay premiums to the South Dakota Division of Insurance so the state does provide some level of insurance to the investor if the company fails.
As indicated above, all of the things I have checked certainly appear to be in order for limiting risk on this high-return investment. I do realize that if anything sounds too good to be true, it probably is. Could you please tell me what additional things I should check out or be wary of for this proposed investment? I am very interested in hearing your general thoughts regarding the appropriateness of this proposed investment.
Thank you so much for your attention to this matter.
Glen
Answer Glen
Your suitability for the given parameters looks like you can afford the potential mistake here, which is also present in any investment.
You are missing something I suspect. 8% is not a number tossed around these days in a plain vanilla story. Some variable companies might guarantee the number underlying a portfolio, but you give up a lot of liquidity. Immediate annuities offer payouts that high or higher, but again you gave away your asset for the cash flow. Equity index annuities offer cap rates and other components in that range but overall I don't see what you are investing in exactly, and suspect you are missing or misinterpreting something. My experience in watching people in my office gripe about the annuity they bought from some guy says that you have wishful thinking about a component of the investment and are being allowed to maintain that belief to push the sale through. Twelve and ten year annuities pay 8, 10, 12% commissions so there is a temptation too great for some agents.
I don't know exactly Glen but I'd do more backup and I am not involved. a fee only planner locally could offer a detailed secnd opinion. Of course another insurance agent in the mix would likely end up being a duel with each agent attracking the other's product; at least you might see what is "too good to be true" about this one.
