Are Variable annuities any good? That is the question many of you are asking. The answer is YES! I know it is hard to believe, especially if you read personal finance columns, but it is true. Annuities are good solid investments. We say this with a caveat, you must know what you own.

Variable annuities are the favorite punching bag of many financial gurus mainly because they do not understand them or how they work. Just as easily as they take shots at annuities, we can take shots at their recommendations. The difference is we understand annuities and the alternative investments they recommend, because of our vast experience in the financial services area.

Let’s clear up some basic myths, shall we? Here is what variable annuity critics say:

“Annuities are sold not bought”. If this statement were true, how do you explain Vanguard and T. Rowe Price selling them without a sales force?

“Variable annuity commissions are too high”. Rarely, if ever, do they pay more than 7.5% commission, which is equal to or less than many other popular investments including mutual funds. The average variable annuity pays the broker about 6%.

“Capital gains tax is at 15% and that makes variable annuities obsolete”. That would be true in a perfect world, but that statement is filled with errors and omissions. Mutual fund distributions usually consist of short term capital gains, not long term. Therefore, the 15% tax rate is a myth and it is temporary at this point and time. You have other distributions with mutual funds as well, including long term capital gains and dividend distributions, regardless of how the mutual fund actually performs. Plus, at the end of your investment time frame, you still have to pay capital gains again when you sell or liquidate your portfolio.

“Tax deferral does not work”. If this were true then why invest in IRA’s or 401 (k) plans? The tax deduction is great, but the tax deferral is the selling point of these investments. Several studies have proven that the average investor loses between 2.5 and 5% of their total return on their mutual fund investments due to taxes.

“Variable annuities are “sold” (see above comments) for their death benefit”. Not even close to being true. The vast majority of variable annuities are sold for their living benefits not their death benefits. In upwards of 70% of all variable annuities are sold with some kind of living benefit.

“Variable annuities have been cited as fraudulent investments”. No, that is not the whole story; it was the broker or agent who defrauded the investor, not the product. That is what all the NASD and SEC alerts are about. Some people do spoil a great product by misrepresenting or blatantly lying to people and forcing them to do something they should not do. People are to blame, not the product.

“Variable annuities are only right for a few people”. This statement is incorrect and misleading. Variable annuities are right for all people who wish to defer taxes or guarantee their investments. They are not right for everyone, but no one single investment is right for everyone.

“The benefits offered by variable annuities are a waste of money as the market historically averages 10% a year”. That statement should never be made. If the market only returned 10% a year then we would all be wealthy, period. We can point out several points in recent history where retiring and drawing income on your portfolio without a guarantee was financial suicide. The market fluctuates and average return is just what it means, average return-- some years positive, others are negative. A couple of negative years can devastate a retirees portfolio and income.

“The fees are too high on variable annuities”. As compared to what? Show me another investment that defers taxes and can guarantee you income now or in the future and then let’s compare fees. Here is another way to think about these fees. If your variable annuity charges you 2.4% a year you are getting 97.6% upside potential of the market with limited to no downside risk. Nothing can compare to that, not even equity index annuities. Plus, how much are you really paying with mutual funds, see capital gains above.

So, are annuities any good? The answer is yes, they are. Are annuities right for you? We have no idea, but if you think they are, then you need to find out what the best product is for your needs. That is exactly what Annuity IQ does…. help you find the best product for your needs, without sales pressure or commissions even entering the picture.