Fisher Investments: Life Insurance And Annuities Options?

Fisher Investments is a globally recognised, client-focused investment adviser serving individuals, families, and institutions. The company was founded in 1979 and offers wealth management services, including detailed financial planning, tailored investment portfolios, and proactive client service. Fisher Investments does not sell annuities and never has, as the company believes that other investment vehicles can better serve clients' needs. However, they do offer resources and an Annuity Evaluation Program to help clients make informed decisions about annuities. Additionally, Fisher Investments provides retirement financial planning advice, emphasising the importance of steady income, diversification of income sources, and considering the impact of taxes and inflation on retirement funds. The company also highlights the role of insurance, such as life insurance and long-term care insurance, in retirement planning.

Fisher Investments does not sell annuities

Annuities are often marketed as a safe investment that provides regular ongoing payments and limits potential losses. While this may sound appealing, annuities are often complex and can have significant drawbacks. Many investors find that annuities fail to deliver on their promises, and their features can prevent investors from reaching their long-term financial goals.

For example, annuities often come with complex, layered fees that can substantially lower returns. These fees can include charges for adding a survivor benefit or opting for variable income, on top of administrative fees, commissions, and investment product expenses. Once purchased, annuities can be difficult to access, and withdrawing money early may incur costly surrender fees.

Additionally, annuities often advertise protection during stock market downturns, but they can also prevent investors from fully benefiting when markets are performing well. For instance, a fixed indexed annuity may guarantee 0% downside during market downturns, but this comes at the cost of low growth potential, resulting in certificate of deposit-like returns over the long term.

Fisher Investments has worked with countless clients who purchased annuities that did not meet their needs. The company has created resources to help educate investors about the potential pitfalls of annuities so that they can make informed decisions.

Annuities are complex and can have significant trade-offs

Annuities can be difficult to understand, with many varieties, features, functions, fees, and more. This complexity can lead to consumers buying annuities without fully grasping the terms, and they may end up with a product that doesn't fit their needs. For example, some annuities offer a guaranteed lifetime income, but others only guarantee payments for a fixed period. Additionally, annuities can come with complex, layered fees, which can substantially reduce returns. These fees may include administrative fees, commissions, investment product expenses, and more.

Annuities may also limit your investment's growth potential. For instance, fixed-indexed annuities, which tie the rate of return to a stock index, often have low growth potential due to the insurance company's use of a price index instead of the underlying index's total return. This can result in returns that are closer to those of a bank certificate of deposit (CD). Furthermore, annuities may not provide protection against inflation, which can erode their value over time.

Another consideration is tax implications. Annuity income is taxed as ordinary income, which can result in higher tax rates compared to capital gains. Additionally, annuities do not receive a step-up in cost basis like other investments, which can result in higher tax burdens for heirs.

Annuities also lack liquidity, with withdrawal typically incurring surrender fees and penalties, especially for early withdrawals before the age of 59½. This can make it challenging for annuity holders to access their money if unexpected expenses arise.

In conclusion, while annuities can offer a sense of comfort and security, it is crucial to carefully weigh the trade-offs and understand the complexities involved before making a decision.

Annuities can have complex, layered fees

Firstly, there are the fees associated with the agent or salesperson who helps the issuing company sell you the contract. These commissions are usually built into the price of the contract and can range from 1% to 8% depending on the total value of your contract and the annuity type. Typically, the more complex the annuity, the higher the commission.

Then there are administrative fees, which are usually around 0.3% of the annuity's value but can vary depending on the type of annuity. Variable annuities tend to have the most fees, while fixed and immediate annuities have very few.

Mortality expenses are fees that compensate the insurance company for the risk it takes by agreeing to a contract with you. These can range from 0.5% to 1.5% of the policy value each year.

If you decide to withdraw money from your annuity early, you may also have to pay surrender charges, which can be as high as 10% of the contract's total value. There may also be withdrawal fees from the IRS if you attempt to take money out before you are 59 1/2 years old.

Some other fees that can be associated with annuities include underwriting, fund management, and tax opportunity costs. Underwriting fees go to those who take actuarial risk on the benefits, while fund management fees are passed on to you if the annuity invests in a mutual fund (which most do). The tax opportunity cost refers to the fact that after-tax dollars that you invest in an annuity grow tax-deferred, but this is not as beneficial as putting pre-tax dollars into a 401(k).

When it comes to fees, it's important to remember that the more complex the annuity, the higher the fees tend to be. So, it's crucial to carefully read and understand the contract of any annuity you're considering and ask questions to make sure you know exactly what you're signing up for.

Annuities may be difficult to access money from

Fisher Investments does not sell annuities and never has. This is because the company believes that anything that can be done with an annuity can be done better with other investment vehicles.

Indeed, annuities may be difficult to access money from. Firstly, annuities are intended to be a long-term part of your retirement income plan. Both the government and insurance companies encourage annuity owners to keep their money in the annuity for the long run by imposing high costs for early or frequent withdrawals.

Secondly, insurance companies enforce stiff penalties for withdrawing money before the surrender period ends. These surrender charges can be costly, and the amount of the surrender charge depends on how long the owner stayed in the contract. Surrender fees can help insurance companies discourage annuity owners from using deferred annuities as short-term investments for quick cash.

Thirdly, the federal government imposes a 10% penalty tax if you withdraw money before you reach 59 1/2, near retirement age. This encourages you to keep money in the annuity for retirement income.

Finally, annuities can be complex, and it can be overwhelming to unpack the different features of each annuity. For example, a mortality and expense (M&E) risk charge is often imposed on annuity holders, compensating the insurer for any losses resulting from unexpected events, including the death of the annuity holder when the account balance is too low.

Annuities can have limited growth potential

Fisher Investments does not sell annuities and never has. The company's founder, Ken Fisher, is quoted as saying, "I hate annuities," and believes that other investment vehicles can achieve better results. This is because annuities often come with complex, layered fees that can substantially reduce returns, and they may not always provide the "safety" that investors seek.

One of the common disadvantages of annuities is their limited growth potential. While annuities often advertise protection during stock market downturns, this protection comes at a cost. For example, a fixed indexed annuity may guarantee 0% downside during market downturns, but this is often offset by low, certificate of deposit-like returns over the long term due to the product's low growth potential.

The limited growth potential of annuities is further exacerbated by the various fees associated with them. These fees can include administrative fees, commissions, investment product expenses, and costly surrender fees if you need to access your money earlier than expected. Additionally, annuities may have complex structures with multiple riders, or add-ons, that come with additional charges, further inhibiting any growth.

Another factor contributing to the limited growth potential of annuities is the opportunity cost associated with them. By investing in an annuity, you may be missing out on the higher growth available from other investment options, such as investing directly in the market. This is especially true when compared to stocks, which historically offer greater potential long-term returns than annuities, despite higher short-term volatility.

Furthermore, the growth of an annuity may not keep up with inflation over the long term. The purchasing power of the annuity payments may decline over time due to the eroding power of inflation. This is a significant consideration, as most annuity payments remain fixed for life. As a result, the limited growth potential of annuities may not be sufficient to help you maintain your desired standard of living in the future.

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