The Palm Beach Post from West Palm Beach, Florida on December 1, 1997 · Page 81
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December 1, 1997

A Publisher Extra Newspaper

The Palm Beach Post from West Palm Beach, Florida · Page 81

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West Palm Beach, Florida
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Monday, December 1, 1997
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Page 81
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TE PALM BEACH, POST DECEMBER 1 997 ' 3 PERSOIJUJFINANCE Are variable annuities still a good investment? the Vanguard annuity, with the smallest fees in the industry of 0.81 percent a year. Perhaps because of the competition from no-load firms like Vanguard and non-annuity products, annuities are becoming better than they used to be. Fees have come down across the industry and the underlying fund offerings are cheaper and better performing. Should you investigate fur ther? If you are in a high tax bracket now, think it's possible your tax bracket will fall in retirement, have exhausted your 401(k)-IRA-Keogh savings possibilities, have 20 years or more to accumulate money, are willing to invest an annuity in fast-growing stock mutual funds and are willing to shop for an annuity with low fees, you are an ideal annuity candidate. Compare products from banks, insurers and no-load mutual fund companies until you find the one that has the diversified investments, low fees and withdrawal features you'd lik6. Linda Stern is a freelance written er who covers personal finance issues for Reuters. You can e-mail her at 72160.1546compuserve-xom or write to her in care of Reuters, Suite 410, 1333 H St., N.W, Washington, D.C, 20005. as long as they had 10 years to let their money grow. Investors also have a benefit when they take their money out, suggests Stephen Bonner, senior vice president and annuity product developer at Keyport Life Insurance. Retirees can structure their withdrawals so that they are guaranteed to last a lifetime. A portion of every withdrawal is considered an initial investment and is tax-free. But now, taxpayers must con D o IF Yl By Linda Stern Reuters WASHINGTON With lower capital gains taxes and a wealth of low cost, tax-smart mutual funds, does it still make sense to buy a variable annuity? That's an $80 billion-a-year question for the insurance industry, which worried that this summer's tax code changes would kill its golden goose. Instead, Limra International, an industry trade group, said sales reached $21 billion in the third quarter, a 25 percent increase from the quarter before. As the American Banker trade paper reports, "That's good news for bankers, because selling variable annuities is far more profitable than selling mutual funds." But is it profitable for the retirement-minded investor? That depends. A variable annuity is an insurance shell that offers deferred taxes on earnings within the account and a modest death benefit that ensures you won't lose money in the instrument. Within that shell are a series of mutual funds in which investors can choose to put their money. Because they offer an insurance wrapper for an investment product, annuities have a separate fee structure that can add as little as 0.8 percent to your fees or as much as 5 percent. In addition, some broker-sold annuities carry sales commissions. The industry average, according to Morningstar, the Chicago research firm, is fees that amount to about 2 percent of assets a year. The theory behind annuities has been that it's worth paying those prices for the benefit of years of tax-deferred buildup. High-tax-bracket savers who had already exhausted their other tax-favored options like 401(k) plans and IRAs could get real profit from a good-performing annuity sider that the deferred taxes still must be paid at their regular income tax rate typically 28 percent when they withdraw the money. Middle-income retirees have the added issue that higher income can quickly push more of their Social Security benefits into a taxable bracket. In contrast, a capital gain on an investment held longer than 18 months could be taxed at 20 percent. Many mutual funds have established their own tax-management goals: Their managers sell losers to offset winners and keep an eye on that long-term clock so investors can pay out little of their earnings in income taxes. And by their very nature, newly popular index funds throw off little in the way of taxes because they don't do much trading. "The capital gains tax reduction really tarnished the appeal of variable annuities," according to Patrick Reinkemeyer, editor of Morningstar Variable Annuities- Receive A Home Equity in lkk . I INmUF'LRFDIT with VISA Gold Card Access At 5.9pr For The First Six Months, Then 95apr There i After For Up To 80ltv! ILife. Instead of it taking 10 years (LTV up to 1 00 available) Finance your holiday spending. for a typical annuity to pay back a typical investor, it can now take 18, he reckons. . But that's typical, and we all know that nobody is really "typical." An investor in a tax bracket higher than 28 percent who buys into a fast-growing and low-cost annuity and keeps his money locked up for a long time can still profit from one of these insurance products. Reinkemeyer points to Consolidate your debts. no closing costs on llnes-cf-Credit up to $50,000. Receive a tax break on your interest PAYMENTS. If you have equity in your home you can take advantage of First Bank of Florida's Tax Reducer Account sm. It's a Home Equity Line-Of-Credit accessed by a VISA Gold card. PACK UP AND GO You don't have to go far to find great CALL 930-4000 IFnrst DBamk Florida's Hometown Ba N K sm vacation ideas that'll get you Travel packing. Just go to the section in this Sunday's Palm Beach Post. Member h'DlC. Interest rate subject to change without notice. Credit is secured by a Uen on your home. You must apply and qualify for credit. Home owner's insurance is required and flood insurance where applicable. The Annuo! Percentage Hate (APR) after the first 6 months shall vary based on the I'rime Hate plus 1, 2, or 3. As of Oct. 31, 1997, the resulting APR would be 9.5 ( l-min To Value up to 80), 10.5 (LTV 80 to 90). and 1 1 .5 (LTV 90 to 100). The I'rime Kate is as published in the "Money Rate" section of the eastern edition of the Wall Street Journal, lip to 100vi t.qmty oj 1 to 4 Jumily residential properties. "Lonsult your tax aavisor regarding the aeauctioility oj interest. i a 4 ft

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