Doug-
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Location: SoCal |
Retirement Planner |
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My wife and I have decided to start putting money aside for retirement and we talked with a financial planner who talked about a variety of options, but one option sounded to good to be true. He reffered to it as an IA account and explained that that your principle is gauranteed and typical returns are %10-15 a year, but even in a bad year your principle is protected. I've done some searches online and I can't find anything regarding this type of account. I'm looking for any information regarding these accounts to help eductate myself about an option that sounds a bit suspect. Any tips would be appreciated.
Doug
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Thu Feb 14, 2008 1:04 am |
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pf101
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My Tip: Run fast and run far away from the salesman.
Personal Finance 101
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Thu Feb 14, 2008 6:26 am |
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Doug-
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Thanks for the tip. He did mention that we could withdraw any earnings tax free and when I asked details on when this type of account came about he intitially said it was put in place 7 years ago and later claimed it's been around for decades, so at that point he lostt me. I wish I could remember what he stated IA was abbreviated for, but at this point we'll consider the meeting a free dinner.
Doug
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Thu Feb 14, 2008 7:26 am |
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pf101
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Location: Portland, OR |
quote: Originally posted by coaster Probably stands for "Individual Account"
Or Indexed Annuity
Personal Finance 101
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Thu Feb 14, 2008 7:30 pm |
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jweschman
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Location: Houston, TX |
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From what you described, he's trying to sell you either a VA (Variable Annuity) or an Equity Indexed Annuity.
Either way, it's almost certainly a great deal... for him... and a lousy deal for you. Just ask:
1) How much do you get paid if I buy this?
2) If I want to withdraw my money, how long do I have to wait before I can take it out without any surrender charges or other (non-tax) penalty?
3) How much is the surrender charge or penalty if I need to take my money out after 1 year.
The answers to those will probably be pretty enlightening (possibly also startling ).
Without a lot more information (your age, expected retirement age, income, current investments or savings, etc), it's difficult to know exactly what the best deal for you would be.
If you're truly "just starting" to put money aside, and in the 28% tax bracket or lower, then two Roth IRA's is probably the best way to go. This assumes that, if you have access to an employer plan (401k etc) with an available employer match, you're already contributing enough to get the full match.
Until April 15th, you each can still contribute $4000 to an IRA for 2007... or $5000 if you're 50+ yrs. For 2008, these limits increase to $5000 (under 50) and $6000 (50+) respectively. That means you could open two Roth accounts, and immediately put away up to $18000 (or $22,000 if 50+).
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Fri Feb 15, 2008 1:18 am |
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401kDave
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Understanding why good people buy bad annuities |
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There are some good annuities but few brokers want to sell them because the commissions are so low. We use some four to seven year annuitites in our business but they are pretty simple and serve a great purpose. Elder investors that don't want to surrender to cds yet like the chance to share in some market return without the risk. Annuities that we use have a minimum of around three percent over four years but have the potential of about 7 or 8% per year. The trade off is they are capped at 7% when the market could do 20%.
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Thu Apr 10, 2008 12:57 am |
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savingplans
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I agree with you. You are on the way.
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Wed Apr 30, 2008 8:03 am |
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efflandt
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Location: Elgin, IL USA |
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I think it was Nightline that recently had a show exposing the dangers of an indexed annuity (IA). The premise is that you can make money when the markets are up and not lose your principal when the markets are down. But you pay for that in reduced gains when the markets are up, and look out below for surrender charges if you need your money.
Since something has to pay commissions to the person that sells them to you, surrender charges in early years can cost 20% or more. Although, it may be in the fine print, they may not explain that to you even if you ask. So they sell them to old people, they suddenly need money for medical expenses, and when they draw it out, they lose a major part of their nestegg to surrender charges. So in reality, they did lose a big chunk of their principal.
So make sure you read the fine print of any investment you are considering and understand what you will pay if you pull out early. That 10-15% is probably not an average, that is probably when the markets are doing 30%. See if they have any long term historical figures, which would likely be more in the 6-7% range on a good year.
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Thu May 01, 2008 12:47 am |
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