Derided strategy looks good right now for retirees! July 28, 2009Posted by shaferfinancial in Finance.
Tags: failure of mutual fund investing, value of insurance products, varaiable annuities
Perhaps there is no strategy that was attacked by mainstream financial planners and do-it-yourself investors more than variable annuities. Derided as expensive, sold by selfish insurance folks looking out more for themselves than their customers, and generally laughed at, this product has turned out to be much better than its critics have admitted. Now I will admit that I am not a big fan of variable insurance products, preferring instead the equity indexed strategy. However, the Wall Street Journal ran an article on this product last week that highlights what I have been telling folks for a while. Folks that believed the indexers and invested their retirement funds into mutual funds have a huge problem. Anyone that followed that strategy over the last 10-12 years has seriously compromised their retirement income. As the Wall Street Article points out, if instead they bought the insurance product with the additional expenses and the guarantee they would have a much higher income today. And so far, even though a couple of insurance companies have been bailed out, there has been no failed annuity payments even by AIG!
How much is that guarantee worth to retirees? I would say quite a bit today. In short, this is another example of where the mainstream has put expenses at the top of the list to their detriment! The models of the mutual fund cheerleaders are severely flawed as I have pointed out many times. Not that I am suggesting variable annuities; I’m not, I’m suggesting value in insurance products and their guarantees!
The time to take the added risk of equity investments is during your accumulation period. And if you haven’t proven your investment acumen as you approach retirement, you might want to consider taking that guarantee!