NEW YORK (AP) -- It's been said that variable annuities are not so much bought by consumers as they are sold to them.
Most people first encounter these complex savings plans when they're presented by insurance agents, brokers or financial advisers.
As the industry has stepped up efforts to market variable annuities as retirement savings programs to the middle class, financial planners have increased their warnings that annuities might not be the best investments for most families.
''It's not uncommon for me to see people coming in with a variable annuity ... wanting to know the best way to get out of it,'' said financial planner Christi Gebhart of New York. ''I try to assure them, 'you weren't stupid for doing it, somebody sold it to you.'''
Variable annuities essentially are mutual funds wrapped in an insurance contract. The biggest advantage for savers is that investments grow tax-deferred until the funds are withdrawn at retirement. Consumers can select the underlying funds as well as the payout method, often a monthly sum guaranteed for life.
Many contracts also have a ''death benefit guarantee'' that ensures heirs get back at least the principal that has been invested.
Kim Greer, a vice president at Nationwide Financial in Columbus, Ohio, stresses that ''annuities can be a little harder to understand, so it's a good idea to sit down with a financial adviser and determine if an annuity is right for you.''
Those who buy variable annuities generally ''are looking for protection that other investment vehicles don't offer,'' such as the tax deferment on earnings, Greer said.
''The great thing is that the annuities can be converted into a stream of income that can last a lifetime,'' she added. ''That means you'll never outlive your retirement assets.''
The industry's trade group, the National Association for Variable Annuities in Reston, Va., says some $137.5 billion in variable annuities were sold last year, a 12 percent increase from 1999. The average age of purchasers is 49, the average age for the start of withdrawals is 62, a recent NAVA survey found.
The problem, financial planners say, is that sales commissions, fund management expenses and fees for the insurance components of variable annuities cut into the saver's return. There also are surrender penalties, often as high as 7 percent, for anyone canceling a contract within the first six or seven years. And savers can face a tax penalty of 10 percent if money is withdrawn before age 59 1/2.
Concerned about inappropriate sales, the U.S. Securities and Exchange Commission has posted a long explanatory article about annuities on its Web site at www.sec.gov. It also has cracked down on brokers who improperly encouraged investors to switch from one annuity to another, triggering penalties.
Financial planner Gary Schatsky, who heads the National Association of Personal Financial Advisors, says variable annuities make sense for only a small percentage of investors.
''If you're in a high tax bracket, have a sizable amount of money you don't need for a long period of time and you've taken advantage of all other tax-deferred savings opportunities, then you might consider a variable annuity,'' Schatsky said.
He suggested investors ''look for companies with the lowest fees, like TIAA-CREF, Vanguard and Fidelity.''
The average saver, he said, will do better ''maxing out'' tax-deferred opportunities such as 401(k) retirement plans, deductible and nondeductible Individual Retirement Accounts and Roth IRAs.
Gebhart, who worries that many people who are being sold annuities shouldn't have them, says there is a category of people they can help.
''There are people out there who have plenty of money but are concerned about outliving it,'' she said. She spoke of a couple who had been married for more than 30 years with the husband preparing for retirement. ''I ran the numbers to try to reassure them, to show them that they both will be fine and that she will be fine if something happens to him,'' Gebhart said. ''But they couldn't sleep at night worrying about it.''
For this couple, a variable annuity with a guaranteed lifetime payout, ''gives them peace of mind more than anything else.''
For others, Gebhart said, ''because of the cost associated with variable annuities, I don't think they make sense.''
On the Net:
NAVA's site: www.retireonyourterms.com
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