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Love the thrill of risk? Invest in an Annuity!
By Stephen Bucaro
With the stock market in steep decline, people are looking
for safe places to invest their savings. Many banks and
investment companies are pushing annuities. Annuities
offer a higher interest rate than CD's, but are they safe?
You could view an annuity as a tax deferred CD. You don't
pay taxes on the interest until you start drawing from the
annuity. But there are some important differences between
an annuity and a CD.
An annuity is a product offered by an insurance company.
With giant corporations like Enron, Kmart, Worldcom, and
United Airlines going bankrupt, can you guarantee that the
insurance company won't fold, leaving you with nothing?
Insurance companies are insured by re-insurers, like
General Re. But it seems no matter how large a company is,
you can't be sure it won't fold. The bankruptcy of a large
insurance company might cause the re-insurer to collapse
along with it.
Bank CD's are insured by the Federal Deposit Insurance
Corporation (FDIC) for up to $100,000 per bank. The FDIC
is a branch of the U.S. Government, who, as you know, are
the people who print the money. If they go bankrupt, we'll
have more to worry about than just losing our savings!
A new type of annuity called a charitable gift annuity has
come on the market recently. These are issued by charity
organizations. You give your money to the charity, you
receive a tax benefit, and in exchange the charity promises
you a fixed payment for life. Unfortunately, this scheme
has become a mode of operation for con artists.
The charitable gift annuity has been added to top ten scam
list of the North American Securities Administrators
Association. They explain that charitable gift annuities
are subject to virtually no federal regulation. Here in
Arizona, 430 investors lost their savings in a ponzi scheme
run by the Mid-America Foundation Inc.
Banks and investment companies hawking annuities promote
the higher than CD interest rates, but they fail to
reveal the hidden fees and high early withdrawal penalties.
If you need to access your annuity before age 59½, you
could be subject to a 10 percent penalty.
With the recent bankruptcies, and discovery that many giant
corporations have been cooking their books for years, I
feel it's best to play it safe. If you love the thrill of
risk, or if you have already purchased an annuity, I wish
you luck. As Will Rogers said, "I am not as concerned
about the return ON my money as I am about the return OF
my money".
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