Dear Liz: My husband and I are 62 and 58. We both are still working and have IRAs. Our financial advisor of 20 years is encouraging us to use some of our IRA money to buy a variable annuity. We lost quite a bit in the recession and have not recovered it all yet. I have read nothing really good about variable annuities and keep telling our advisor that, but she insists we really need one. We cannot afford to have another big loss either, so we do not know what to do. All our IRA money is in mutual funds. Can you give us any guidance?
Answer: If your advisor gets paid a commission for selling annuities, as she probably does, she’s not an objective source for you on this topic. Consider investing a few hundred dollars to consult a fee-only financial planner, who can review your financial situation and your investments and offer advice.
Variable annuities aren’t always a terrible option, but they’re a poor fit for IRAs, which already offer the tax deferral that’s a big part of an annuity’s appeal. The so-called living benefits that guarantee a certain payoff typically come at a high price, which is why you should always run these investments past an objective source before you buy.