Second Opinion on Variable Annuity Plan

**jIM_Ohio** · 04-13-2008, 02:21 PM

General questions get general answers

my general answer to you is to have a financial plan and stick to it.

Specific questions get specific answers.
Post your age, your desired retirement age, how much you can invest (in dollars) and express the savings as a percent of gross income too. Post the amount invested into the VA and then we can get real specific, real quick.

**disneysteve** · 04-13-2008, 02:21 PM

Run away as fast as you can. You found all that negative stuff online for good reason. Variable annuities make lots of money for the sales people (like that advisor) but aren't a very good deal for the customer.

How did you find this advisor and how were you charged for your visit with him?

ETA: At age 28, I would think you would want a diversified portfolio on the aggressive side. You can do that on your own with no-load mutual funds from companies such as Vanguard, T.Rowe Price, Fidelity and others.

**fsa3** · 04-13-2008, 02:29 PM

Thanks for the responses. A few more details:

Currenly my wife and I have a total yearly gross of about 210K. That will drop to about 150K after she gives birth at the end of the year. Right now we have about 20K (lump sum) ready to invest and figure we can invest about 2500 a month. I'm already investing 6% of my wages into my 401K (the account has 50K in it now). Other than that we have about 10K spread around in 2 brokerage accounts. For the most part we've not had a real "plan"

As for the financial advisor, we got him through a friend of the family, and we've used him before to help setup our life insurance (term) ...

Thanks.

**disneysteve** · 04-13-2008, 03:00 PM

What's Wrong With Variable Annuities (Retirement: Personal Finance) at SmartMoney.com
Here is a good article from Smart Money magazine (published by The Wall Street Journal folks).

**jIM_Ohio** · 04-13-2008, 03:32 PM

A traditional or Roth IRA might serve you well. If you make 210k gross in 2008, I am guessing Roth eligibility is out, and deductability of an IRA is also out. I would still contribute the 10k yearly max to a traditional non deductable IRA for 2008. More on this later.

At 150k, you will be in middle of 25% tax bracket based on income in 2009. Depending on your tax deductions (mortgage interest, additional dependant), you may or may not lower yourself into the 15% tax bracket. You are paying 25% tax on these contributions.

If in 15% tax bracket, then contribute to a Roth IRA.- You are paying 15% tax on these contributions.
If in 25% tax bracket contribute max to a deductable IRA (in hopes of getting tax deductions into 15% tax bracket). You are paying no taxes on these contributions.

If you squeeze yourself into 15% tax bracket, take some of the 2008 Traditional IRA and convert it to a Roth. You will be paying 15% tax on any gains since 2008.

There is a 15% tax bracket cap of 66100 for married couples. My wife and I gross ~110k and we were able to squeeze taxable income to 62k because of mortgage interest in 2007. Simple tax planning like this is saving you 10% on your taxes. It takes a good tax accountant to lower 150k of gross income to 66100 of taxable income, but it is possible. I use turbo tax and that helps with all of above numbers and calculations.

10k into traditional IRA in 2008 plus 10k into a Roth or deductable IRA in 2009 will be a portfolio of 20k. At that level, I would look for 2-5 funds which create a solid long term retirement plan.

I would then also look at 401k as a way to
a) reduce taxes paid
b) build on solid retirement plan mentioned already.

**Snave** · 04-13-2008, 04:05 PM

Why are you not maxing out your 401k? With a salary of 150K and 6%, that equates to 9K. If you go to 10-11%, you will max out your 15.5K. You have stated that you have an additional $2500 a month to invest, so why wouldn't some of that go to a tax deferred plan? If you go down to the 150K as well, the next logical step would be to open roth's for you and your wife. Again, if you can put the max away for both of you next year, then that is 10K. The math on this ends up with $15,500 in your 401k (+ any company match if you get it) and then an additional 10K in Roth's. That is 25-26K + company match. That ends up being 17% of 150K, which is a really good start on your retirement. Throw in the company match and you probably jump over the 20% mark for retirement.

**maat55** · 04-13-2008, 05:14 PM

Stay away from variable annuities, buy term insurance of about 8 to 10 times your income and invest in Mutual funds. When your income drops to 150k, you will qualify for Roth IRA's. Also, if you can invest in your companies 401, do it to the match.

**noppenbd** · 04-14-2008, 04:42 AM

All the advice you have been given is great. Skip the VA, max out the 401k, contribute to a traditional IRA for 2008 (contributions may not be deductible this year), start contributing to a Roth next year when income drops. If your wife continues to have some income you can contribute to a Roth for her as well, up to her earned income for the year. Then in 2010 income restrictions on converting Roth end so you can convert your nondeductible contributions from 2008 to Roth in 2010.

EDIT: I was wrong, even if your wife stops working entirely you can still contribute to a Roth on her behalf.

**LuxLiving** · 04-14-2008, 04:52 AM

Wait, wait, wait and then 'possibly' a variable annuity 'MIGHT' be a good idea when you are much, much, MUCH closer to retirement - 'MAYBE'!!

And even then, like I'm sure your Momma & Daddy told you, ALWAYS read the fine print!! and understand exactly what you are buying.

IOW, VA? not at your age.

**Scanner** · 04-14-2008, 07:52 AM

I'm going to give you some home spun country advice, mi' boy:

Invest in only what you understand.

I'll repeat that:

Invest in only what you understand

I understand most investments. . .but there are two that I don't understand:

1. Annuities
2. Stock options

I can understand commodity futures better than stock options.

Annuities. . .it seems like a Ponzi scheme to me. . .but again, I don't understand them.

Tell you what, you send me whatever amount you were going to give the financial advisor salesman and I'll send you a check at retirement.

I promise.

**Scanner** · 04-14-2008, 07:56 AM

Second Opinion on Variable Annuity Plan