You Screwed Up. Now What?

We all make mistakes. In the world of retirement investing, with all kinds of new and complex products hitting the market every year, it's easy to make some big ones. Most of us will, at one point or another.

Of course, whether that mistake is just a blip or a retirement-killer depends on what you do next.

Today, I got a letter from a reader -- let's call him Bob -- who had seen my recent article about the downsides of annuities. Bob, who is now 35, got laid off about three years ago, and while trying to figure out what to do, ended up in the office of the 'investment advisor' at his local bank.

That was his first mistake: Investment reps in banks are almost always a terrible source of help.

Just say no to bank brokers
Buying your investments from an "advisor" at your local bank is tempting for the uninformed, but it's usually a big mistake. Those advisors aren't bankers, they're brokers, with the big fat fees you'd expect from a full-service broker, but often without much of the training and institutional support that brokers at Morgan Stanley (NYSE: MS) or Merrill Lynch (NYSE: MER) -- and their clients -- take for granted. And all too often, the products offered in banks are the worst of the worst: high fees, low performance, and best avoided.

At the time, "uninformed" was a pretty good description of Bob. And worse, he was probably in a little bit of a panic. Getting laid off is traumatic, even if you're youngish and single, as he was. He went to his bank -- I won't name his bank here, but it's one of the biggies, a name you'd recognize -- and sought help.

What he got was an annuity. Specifically, he got a rollover IRA annuity, with some hefty fees attached. To make a long story short, Bob made money on his original investment, though not much, and the annuity's term will be up in a few weeks. His questions for me: Did I get ripped off, and what do I do now?

Here's the essence of what I told him:

If this were my situation, when that annuity IRA matures, I'd chalk it up to lessons learned, roll it into a Rollover IRA account at Fidelity, and put it into a couple of good stock mutual funds -- or buy stocks directly if you feel you have the skills to do that.

Seriously, don't stress too much about it. You could have done a lot worse, you're young, and you've got lots of time to recover. Sure, if you had invested in Google (Nasdaq: GOOG) three years ago you'd be up about 83%, and if you'd bought Garmin (Nasdaq: GRMN) you'd be up about 75%, but the truth is, you probably wouldn't have bought either, given your level of knowledge back then.

At best you'd have bought an S&P 500 index fund, and you'd be up about 13% or so over that period. That would be better than what you got, but not so much better that you should be losing sleep over it.

We all make investing mistakes along the way -- I've made my share and I've been steeped in this stuff for my whole adult life. That's how we learn. If this experience gives you some wisdom and knowledge to draw on thirty or forty years from now when an annuity might again be a consideration, it will have been worth it.

And hey, now you know to stay away from those turkeys at the bank. That's a big lesson that could have been a lot more expensive than it was.

Roll it wisely
As I've said before, there are lots of good reasons to roll your 401(k) balance into a rollover IRA when you leave a job. But as Bob's experience shows, the details matter. If you're comfortable choosing investments on your own, the best option is a rollover IRA account at a discount brokerage with a wide choice of low-cost investment options.

I suggested Fidelity to Bob because he has other accounts there, but Charles Schwab (Nasdaq: SCHW) or E*Trade (Nasdaq: ETFC) or T. Rowe Price (Nasdaq: TROW) or any of several other choices would be fine. Each has pros and cons, but they're all better than Bob's annuity.

And if you need help? As I told Bob, a fee-based investment advisor -- one you pay by the hour, rather than via expensive commissions on your investments -- is the way to go for in-depth, personalized advice.

But if you'd like a less expensive middle ground, the Fool's Rule Your Retirement newsletter is a great place to start. You can get personalized feedback and guidance via the members-only discussion boards, and you get access to five years of objective, hard-hitting articles on all facets of preparing for retirement. It's not free, but a year's subscription is still cheaper than a meeting with that investment advisor -- and you can get full access free for 30 days, with no catch.