Rising Interest Rates: Another Reason to Avoid Equity-Indexed Annuities

Rising Interest Rates are just one more reason to avoid Equity-Indexed Annuities. If you are retired or near retirement, dont let yourself be talked into purchasing an Equity-Indexed Annuity. If you do, it could easily be a decision you regret for many years to come. Guarding Your Wealth is a nationally syndicated weekly personal finance column written by Jeffrey D. Voudrie, CFP. Mr. Voudrie is the President of Legacy Planning Group, a private wealth management firm that employs sophisticated proprietary strategies designed to protect and grow its clients' investments. Please visit our website, www.guardingyourwealth.com to read past articles in our archive.

Johnson City, TN July 19, 2004 -- Rising Interest Rates are just one more reason to avoid Equity-Indexed Annuities. If you are retired or near retirement, dont let yourself be talked into purchasing an Equity-Indexed Annuity. If you do, it could easily be a decision you regret for many years to come.

Ive been called a lone voice in the wilderness speaking out about the dangers of equity-indexed annuities. It seems that everywhere you turn there is an advisor or insurance agent telling you an equity-indexed annuity is the greatest thing since sliced bread. Dont believe them.

Let me congratulate you if you have sought this article out in one of the many newspapers that run my column each week. Or maybe youre one of the hundreds of thousands of people who have come across my articles on the internet. The fact that you are looking for more information on this product means that you question the wonderful claims asserted by the salesperson trying to get you to buy an Equity-Indexed Annuity!

Ive talked at length in other articles about the hidden dangers in Equity-Indexed Annuities. You can find those articles at www.guardingyourwealth.com, but the 3 main reasons are (1) they needlessly require you to lock up your money for a very long time, (2) the majority of your returns are still based on the stock market and (3) the commission for selling an Equity-Indexed Annuity is so high it creates a tremendous conflict of interest for those recommending them. Rising interest rates are just one more reason. Let me explain.

Equity-Indexed Annuities eliminate your flexibility and control over YOUR money. In todays post-9/11 world where terrorism is a very real threat, it is important that you have the ability to make changes to and access all of your money if you want or need towithout incurring surrender penalties that can be as high as 20%! Locking your money into an Equity-Indexed Annuity for 10 or 15-years causes you to lose control of all but a small portion of it. Equity-Indexed Annuities dont offer enough reward in exchange for such a long-term commitment.

The main selling point of an Equity-Indexed Annuity is the ability to participate in the returns of the stock market but have a guarantee that your money will earn at least 3%. I go into detail about this in other articles so let me just say that the performance of these investments is designed to come from the stock market, not the guarantee. If you are willing to invest in the stock market, I feel there are better ways to do it which can provide downside protection while allowing you to retain complete control and flexibility of your money. Feel free to contact me for more information about a strategy your current advisor doesnt even know about!

Rising interest rates is another reason to NOT invest in an Equity-Indexed Annuity. Over the past 3 years, the thought of earning a 3% fixed return on your money didnt sound too bad. Certificates of Deposit at the local bank have only been paying 1% or 2%. Thats made it difficult for those relying on that income to meet their monthly needs. Equity-Indexed Annuity salespeople have used this as a main selling point.

But things have changed. The Federal Reserve recently increased the Federal Funds interest rate by one quarter of one percent. That may not sound like much, but it is the first time they have raised rates in four years. They also signaled that the economy is heading in the right direction and that they will continue to raise interest rates over the next few years as necessary to keep inflation in check.

The interest rates available on Federally Insured Certificates of Deposit (CDs) have already risen significantly. You can earn almost 2.5% on a 1-year CD and over 3% on a 2-year CD. The futures markets project that Federal Funds interest rates could be as high as 3% by the end of 2005. Thats means it is likely that you will be able to get a 1-year CD for over 4% and a 2 or 3-year CD for 5%.

Think about itif you can earn 5% on a short-term, Federally-insured Certificate of Deposit, why would you want to lock your money up for 10 to 15 years with a guarantee of only earning 3%? Especially if you would have to pay a penalty that could be as high as 20% to get at more than just a small portion of it! It just doesnt make sense.

For those needing income, now is the time to be patient. Use short-term investments like Certificates of Deposit that mature in 1-year or less. When they come due, chances are rates will be significantly higher and youre patience will be rewarded.

If you would like me to answer specific questions about your financial situation, feel free to email me at e-mail protected from spam bots. I respond to readers questions on an almost daily basis and would be happy to answer yours.

Mr. Voudrie is a Certified Financial Planner, nationally syndicated newspaper columnist and President of Legacy Planning Group, Inc., a Private Wealth Management Firm in Johnson City, TN. You can receive free, clear, unbiased advice toll-free at 1-877-827-1463 or at e-mail protected from spam bots

Looking for an energetic expert who is passionate about financial and wealth management? Mr. Voudrie is an excellent speaker who will excite and inspire your audience. Mr. Voudrie is available for a limited number of speaking engagements, television appearances and radio talk shows. For booking information, contact Christine Lavender at (877) 827-1463 or email e-mail protected from spam bots.

Related Articles can be found at www.guardingyourwealth.com under the Guarding Your Wealth Article Archive:

Equity Indexed Annuities: There Are Better Growth Alternatives
Equity Indexed Annuities: There Are Better Alternatives (Stability)
Better Alternatives Than Equity Indexed Annuities
Equity Indexed Annuities: Agents Prey On Unsuspecting
Consumer Alert: Equity Index Annuities

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