Annuities (especially equity-indexed annuities) are the product of choice for insurance agents and other commission-based advisors. Why? Because it’s an easy sale for the advisor, it pays a huge up-front commission and it locks the client in for several years so little attention has to be given the client or his/her money.

Annuities are an easy sale for an agent because, in theory, it gives the investor everything they could ever dream of. Agents tell you that equity-indexed annuities can give you the returns of the stock market in the good times without any of the risk. In fact, they will guarantee you will earn a minimum amount even if the market crashes.

Those selling the latest variable annuities will explain that you are guaranteed a 7% return! They’ll tell you there’s no way to lose money.

Wow! What an investment!

That’s not all. If you invest today the insurance company will even pay you a bonus! Some pay a bonus as high as 12%! Think about that, Mr. Prospect. If you transfer all of your $1,000,000 retirement account into this whiz-bang annuity, you’ll get $120,000 right off the bat. Is that great or what?

Why, you’d be an idiot to not instantly throw every dollar you have into one of these. Some agents out there are even recommending you borrow money to put into these annuities!

Oh, if only it were so easy. But it’s not. Give me a break!

First, what the agent or advisor isn’t telling you is that he/she can make as much as 10% off of every dollar you put in. If you transfer that $1,000,000 retirement fund into one of these, the agent may make $100,000! Did the agent happen to mention that? Talk about conflict of interest!

Second, do you really think that an insurance company is going to give you a 12% bonus AND pay the agent a 10% commission AND that the money isn’t somehow going to come out of your pocket? Come on.

How can the insurance company pay out 22% right up-front and still stay in business? I remember seeing a humorous sign at a local business: “We rip-off the other guy and pass the savings on to you!” Is that what you think the insurance company does?

Nor is there an insurance company on the planet that can guarantee you will earn 7% a year on a variable annuity. None.

There’s always a catch. The problem is that it is very hard to find. Unless you are a Philadelphia lawyer and can parse every word of the contract you aren’t going to see it. Most advisors don’t even see it!

For the millions of seniors suckered into these products, there’s little they can do. They’ve contacted their State Department of Insurance to little or no avail. They’ve pleaded with the insurance company. Often, they are advised to go to an attorney. What should you/they do in this situation? The options are very limited.

First, I recommend withdrawing the penalty-free amount that is available each year and transferring that money somewhere else. If the annuity is an IRA, you can still transfer that penalty-free amount to another non-annuity IRA each year without tax consequences.

Second, you have to determine if it is better to pay the surrender penalty or wait it out. Brad, who recently contacted me, is choosing to pay the 15% penalty. An agent sold his 89-year old father an annuity with a 15-year surrender period! What topped it off was that the heirs will have to pay a surrender penalty to get the money if his father dies before age 104!

It’s a very expensive education for those in this situation. That’s why I speak out so strongly against these products. There isn’t an easy way out. And remember, there’s always a catch. Don’t take that chance. Stay away.

I’ll personally respond to your questions, free of charge. Go to http://www.guardingyourwealth.com and click on ‘Ask Jeff’.

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In addition to being a nationally syndicated columnist and Certified Financial Planning Practitioner, Mr. Voudrie provides personal, private money management services to clients nationwide.

Nationally-syndicated financial columnist and Certified Financial Planner® Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He’ll answer your financial question – FREE at http://www.guardingyourwealth.com