Retirement Planning/annuities


My son, 43, is currently working in India for a large educational corporation.  Because he works outside the U.S., he is not eligible for a Roth IRA.  We have been advised by a financial advisor that a variable annuity is a good retirement vehicle for him.  We are looking at MetLife Preference Premier.  However, I'm also reading about fixed index annuities hoping to understand all the options.  Would he be eligible?  Is the fixed index annuity a safer vehicle?  Does it offer substantial growth over 25 years? I read that the principal would be safe.  Are there fees attached to it?   Your help is greatly appreciated.

Hi Patricia,

I'll answer this question as best I can but I do not know the exact ramifications of your son living outside the country. In the US one must purchase an annuity in the state they reside. So someone living in Utah could not buy a NY product,etc. The reason I would not recommend an annuity as a primary retirement vehicle for a younger person is because of the way they are taxed. In a "qualified" retirement account such as an IRA of 401k, contributions are made pre-tax and retirement withdrawals are taxed entirely as ordinary income. An annuity that is not inside of a qualified account, therefore a non-qualified annuity is taxed "last in, first out" or LIFO as we say in the business. In a non-qualified annuity, contributions are made with after tax dollars so you would receive no tax deferral up front. The growth of the account above and beyond the amount you contributes is taxed first upon withdrawal as ordinary income. So for example, if you put in $100k and the account grew to $200k, the first $100k would be taxed as ordinary income and the remaining amount would be the return of your principal so it's not taxable.

I probably would not recommend a variable annuity to someone your son's age unless he were able to purchase a product that had some type of income guarantee at retirement age. Variable annuities can be quite risky and the expenses can be very hefty. An FIA or fixed indexed annuity guarantees the safety of you principal and has no fees but the cap rate or maximum rate of return allowed is very low right now because of the low interest rate environment we are in.

Again, depending on the ramifications of him living abroad, fixed indexed universal life insurance may be a better way to go than the variable or fixed indexed annuity. The cap rates are much higher than a fixed indexed annuity (12-18% vs 3-4%) plus withdrawals are not taxable if done correctly. What you need to do is put in the most money the contract will allow you. So if the minimum premium is $2K, the contract may allow you to put in $8-9K. This is called overfunding. Being that the cap rate is so much higher it is very possible you can earn more money in the life policy than you can in the annuity even after paying for the insurance component. There is also no chance of loss of principal like the FIA. Plus the tax treatment of life insurance is far better than any other financial vehicle out there. Tax free if done properly. Again though, I don't know if he could buy an American product or if he would have to purchase a foreign product.

I hope this helps. Feel free to ask more questions if needed. Thank you.


Retirement Planning

All Answers

Answers by Expert:

Ask Experts


David M Iannopollo


I am a professional financial advisor who can assist you with answers on mutual funds, annuities, IRA's, rollovers, qualified and non-qualified retirement plans, retirement planning, educational planning, life, disability and LTC insurances. I can also show you how to take advantage of the stock market gains without the risk of loss!


I have over 25 years experience in the business and financial world.

Life experience has been my greatest education!

©2017 All rights reserved.