The "Great Divide" debate continues

Think of the wife: Last month she was planning the couple’s next vacation, and this month she is dealing with home health agencies, pharmacies, gerontologists, and shopping for assisted living. Two months later, the couple’s next quarterly statement arrives in the mail, and she has no idea what that entry on page 19 (of 34) means, or why the account has lost money. An FIA is clearly the better alternative for some of the funds held by such a couple, and Tokunaga is correct to use them in such instances.

Obfuscation from the brokerage industry
Also, I did find it interesting that Dragotta thinks variable annuities “alleviate short-term volatility.” That reads like obfuscation from a brokerage industry known for it–and for the axiom, “When the only tool you own is a hammer (stocks/bonds), every client looks like a nail.” While the income rider on a VA might guarantee that a future accounting value–upon which a future income could be based–will grow by 5 percent to 6 percent a year and never decline, the client’s account value can (and has!) dropped like a rock. Thus, both a 50- and a 70-year-old can experience dramatic declines (57 percent from October 2007 to March 2009) in a VA. That’s on monies it’s taken one 30 and the other 50 years to save–subject to fees/expenses typically exceeding 3 percent to 4 percent a year.

One might argue that an index annuity is clearly the better recommendation for the 70-year-old, and that a combination of an index fund (or ETF in the short term) and an index annuity would better suit the 50-year-old with substantially lower fees and risk. These were the recommendations of authors Gensler and Baer (two former Wall Street regulators) in “The Great Mutual Fund Trap” (2003), the best book on investing I’ve ever read.

Jack Marion is right: If you really want to eliminate volatility and truly guarantee against loss, recommend the less expensive “genuine” (FIA) over the costly imitation.