Annuities: do you know what you’re getting into?

Welcome to the Hotel California...
of investments.

As a Registered Investment Adviser, Cadinha & Company has a fiduciary obligation to act in the best interests of our clients. That’s why you won’t find us selling any products, annuities or otherwise. Why not? Let’s get into that in a little more detail:

Asset allocation.

The funds offered within the annuity may not suit your changing investment needs and may hold assets in risky sectors or in equities that don’t mirror your values. Products like this tend to leave little room for customizing anything just for you.

Management fees. Administration fees. Investment fees. Insurance rider. Commission. Taxes.

If you look closely at the fine print, you may find a number of places where the insurance company collects annual fees on your annuity. Then there’s the cost of the insurance rider. Not to mention the commission (gulp) paid to the financial adviser who sold it to you. And someday when you take out your gains, they’ll be taxed as ordinary income, not as capital gains.

You can check out anytime you like, but you can
never leave.

Which is the whole idea. So if you do decide to check out, it’s going to cost you. If you run for the door before you are fully vested, which can take years, you must pay a surrender charge. The fine print will tell you how much; it can be substantial. If you check out early, before age 59½, you must pay an additional 10% on any gains when you file your federal tax return.

If you don’t mind being a prisoner of your own device, annuities may be for you. But they’re not for us, or our clients. Still, we encourage you to do a little more reading about annuities. Just click on the links below:

(Annuities Not For Everyone – New York Times)

(The Price of Safety – Morningstar)

(Annuities Not Bought, But Sold – Forbes)