A diploma without debt is well within your reach. Strategize a plan to defeat student loans now.
For retirees, annuities are an answer to common retirement problem: How do you get a monthly guaranteed stream of income that will last for life? This is an issue in a world in which most workers have 401(k) plans and you're faced with the challenge of dealing with a lump sum at retirement, which is hard for most retirees to manage.
Annuitizing, or converting that 401(k) lump sum into monthly payments, is hardly a new idea. Yet millions pay too much for annuities -- and may not even know it. You can spend a lot less and gain much more in income.
Annuity sales are loaded with costs when you buy them from a broker or agent. If you have to pay a commission, which I don't recommend, salespeople get perks to sell them. And you're never told what kinds of incentives they are getting.
Senator Elizabeth Warren recently blew the whistle on these hidden deals. She queried 15 top annuity sellers to find out if they offer perks to their sales people. Thirteen of them said they did, creating conflicts for consumers.
"Companies shouldn't be allowed to offer expensive vacations, prizes and other kickbacks to agents in exchange for selling costly, second-rate investment products to unsuspecting customers," Senator Warren said. "This investigation highlights the need for a strong Conflict of Interest Rule to protect the savings of families trying to save for retirement and to ensure a level playing field for companies and advisers who want to do right by their clients."
Here's what Sen. Warren found:
* The vast majority of companies investigated admitted to providing rewards and inducements, such as expensive vacations and other prizes, to annuity agents in exchange for sales.
* Annuity companies also create conflicts of interest and evade some existing restrictions by offering perks and inducements to annuity sales agents through third party marketing organizations.
* Current disclosure rules are inadequate to ensure that customers are informed about the incentives agents receive for selling them specific financial products.
It should be noted that Sen. Warren is for regulations that protect investors and retirees against brokers and agents selling overpriced and inappropriate vehicle. A new rule, proposed by the U.S. Dept. of Labor, would protect retirement investors. It's being fiercely opposed by the insurance and brokerage industries, who have done their utmost to kill it.
A similar rule is pending within the U.S. Securities and Exchange Commission, although it's been dead in the water for years. All told, conflicted advice costs investors some $17 billion annually. Money that goes into commissions and management fees could be going into your retirement savings.
What can you do to avoid getting fleeced on an annuity? If all you need is a guaranteed income, then get the simplest product: an immediate annuity. It's a no-frills product that pays a fixed amount for life.
You can also insure your spouse for an additional cost (called a "joint and survivor" annuity). You'll pay much more for their fancier cousins, which are called "variable" annuities that offer you an array of benefits and mutual funds. They are also much more expensive, complex and difficult to understand.
You can save a bundle by going through annuity sellers who sell "no-load" products, which means they won't charge a commission -- you can buy them directly and avoid an agent -- with low costs. Here's a list of the top no-load sellers.
If you're absolutely befuddled as to the best annuity to buy -- or whether you need one at all -- consult with a fee-only financial planner. They will charge you for their time and advice, but will not make a commission on the products they recommend.
