AboutWillard R. Brumbaugh, LUTCF Expertise I have answered many questions regarding 401ks, IRAs and annuities as well as life insurance.
I have been counselling against most Qualified Plans since 1994.
Experience Ranked in the top 5 in retirement catagories at Askme.com most of its last 2 1/2 years. Organizations I belong to:
National Association of Insurance and Financial Advisors-California
Inland Empire Estate Planning Council
Education/Credentials Life Underwriters Training Council Fellow
Question I am 43 and my wife 38. My fin & insurance agent advising me to rollover my 401k about (200K) into Rollover IRA (with Fixed Annuity of 12 %bonus +8% annual rate). Then we are planning to roll over Rollover IRA into Roth IRA next year (2010). What will be the best investment option for me (Fixed annuity vs. Equity Indexed etc)?.
Answer Dear John,
I have reason to believe that your agent did not clearly explain which was a Fixed Annuity and which was an Equity Indexed Annuity. To complicate things further Equity Indexed Annuities are no longer called that, but rather Fixed Indexed Annuities.
Fixed Annuities are generally in the 4-5% range with guarantees of 3% or less. I know of none that are at an 8% rate.
What you described was a FIA with a 12% bonus with a participation cap of 8%. This means that if you keep the annuity through the full qualifying period, you will get the 12% bonus on the original deposit, and if the cap is never changed, and the index goes up at least 8% per year, you will get a compounded 8% annual gain on 112% of your original deposit. On the other hand, if the market goes nowhere, you will still get the bonus, but the annual gain could be less than 2%.
The last figure that I saw for the average gain on FIAs over the last number of years was 4.17%. Traditional Fixed Annuities over the last 10 years have fared better than the Indexed Annuities. This is no prediction that the FAs will do better than the FIAs. We simple don't know. You may want to split your funds into both vehicles, in order to improve your chances for some gain.
Willard R. Brumbaugh, LUTCF
CA License 0374776
(888) 792-2379
www.willardbrumbaugh.com
