Use and Abuse of Annuities for Elderly Clients

Category: Elder Law, Financial Planning

From msfinancialsavvy.com, a thoughtful article on possible abuses of the sale of annuities to uninformed elderly clients. While and annuity can be an excellent investment option, like all investment options, there are pros and cons to be considered. Some of the inherent limitations in liquidating an annuity make them a bad investment for seniors. Alternatively, these same limitations can make annuities a central part of Medicaid planning, as an annuity may under certain circumstances be deemed an "unavailable asset".

An excerpt:

"The advantages of an annuity are supposed to be that

1. You will get payments for life so you don't outlive your money,
2. Your beneficiaries will get at least the principle invested when you pass on,
3. That they are tax-deferred, meaning taxes are paid only on the money you withdraw.

The problem with annuities and selling them to elderly, are that they are a long-term
investments when it comes to profits, and the charges can be outrageous. If an elderly person decides he or she needs the money they invested in an annuity they can face many complicated charges. Those charges are calculated using different types of rules and include,

1. Surrender charges,
2. 10% federal tax penalty (if the person is not 59 1/2),
3. Underlying mutual fund expenses (of the funds in the annuity),
4. Mortality and expense risk charges, and
5. Fees and charges for other features."