So my nephew's girlfriend is in her early 30's. She is coming into a large sum of money and started talking with financial advisors. A young one who came highly recommended advised her to put the money into an annuity. Why would he advise this at such a young age? Don't know much about annuities just trying to learn now.
All sheep are eventually led to slaughter
My guess is the advisor makes money on fees associated with the annutity.
I would tell her to open a brokerage account and buy some market ETFs and dividend ETFs.
Thanos was the hero
When I was a young guy I lost my wife in a car accident. While we weren't poor, we weren't rich either. I was dealing with her death and having to navigate everything that comes with it as well as trying to make decisions about life insurance and such. I ended up taking a structured settlement just because I had seen people run through lump sums and I wasn't in my right mind and didn't know how I would handle everything.
28 years later I'm OK financially. The structured settlement money is still coming in and will be for the rest of my life. At the time of her death we had just bought land and built a house. I didn't make enough to be able to afford it by myself. I was in my own business and owed for that as well. I took part of the insurance money and paid everything off and invested some more of it as well as the settlement.
In the end I managed pretty good I guess and I would have probably done ok without the structured settlement. I realized pretty quick I could have most any material possession I wanted as long as I didn't want too much or think I had to have it too quick. I've pretty much stayed debt free and would advise that to everyone. I would advise her to get debt free and remain there. She should not go into the principal amount after getting debt free. The way interest rates are now a couple of FDIC CD's would not be a bad idea to start with. She can always change things later.
Have her talk to another advisor. An annuity for someone who is 30 does not make sense to me. Returns will be low and fees will be high. No rush to invest the money. If it is a large sum, have her educate herself on investing.
I would invest in a range of either etfs or mutual funds. At 30, there is plenty of time for the stock market to make her independently wealthy.
Not difficult but a new investor will need some guidance to pick the right spread of funds.
Stress finding a fiduciary.
Thanks everyone for the answers. Everything i had previously read suggested annuities really are not for young people. Just wanted some reassurance. Thanks again
All sheep are eventually led to slaughter
In other posts, someone recommended having a CPA, Tax Lawyer, and Fiduciary together in the same room to discuss options/recommendations.
Reducing future tax bite will be a consideration. If this is an inheritance, any growth will be taxed unless invested in a tax-free option.
At a minimum, I would want to convert the maximum amount to a Roth each year.
Assuming it was a variable annuity that was recommended the pitch is appealing to the uninformed and the advisor is compensated handsomely if it is bought. The annual fees are high and the money is locked up for a long time.
That doesn’t mean she shouldn’t put her money into it if it is what it takes to make a commitment to equities. There is no reason why she can’t interview several advisors.
2006 Triton TR196 w/ 200 Optimax \ 2021 AlumaRyder 1860 w/ 200 Rotax
Almost are all nowadays and means nothing about their abilities to manage your money. Work with a CFP, either within a firm or independent, but make sure your advisor is a licensed CFP. JMOOriginally Posted by titanxt
Greg
Edgewater 245CC
Certified Fee Plucker? A very overrated designation.
There is no magic in picking an advisor. You need to find one who has only the best interest of the client in mind when making recommendations and who is not greedy. These folks are in business to make money and fees are inevitable but there is reasonable and then over the top.
2006 Triton TR196 w/ 200 Optimax \ 2021 AlumaRyder 1860 w/ 200 Rotax
Way too little information for anyone to make a legitimate comment or suggestion here. Just like anything else annuities can serve a purpose and all are not evil high fee products.
lets say I have more $ than I can ever spend and intend to give some $ to a charity at my death. A low cost plain vanilla variable annuity would let the money be invested in the market, grow tax deferred where I do not pay any income tax, and then the charity gets the money and pays no tax….every one wins
lets say I have money I will never spend and plan to leave it to a relative ( not my spouse) . I could pay the taxes every year on interest, dividends and cap gains, or I could use same variable annuity, never pay any taxes, and let the person who inherited the money pay the tax. Yes the earnings would be taxed as ordinary income and no step up in basis, but they still have more money after paying the taxes than before… so they are still happy. Use a annuity that allows the stretch provision for heirs and they can stretch the return of principal and earnings over their lifetime to ease the tax bite…
I do not own a jackhammer for concrete work and many will never need a jackhammer, but it is the right tool for the right jobs.
I have some (5% or so) in annuities. They are just another investment product. Started when I was younger. Diversified portfolio is the best approach for long-term.
She could talk to Mariner and Fisher. Both will give her a lot of info at no cost while hoping to get her as a long term client.
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