The folks at Genworth
Genworth recently discontinued its sales of variable annuities. Its reasoning is purely financial: They haven't been selling well. Genworth sold $151 million worth of annuities in the third quarter of 2010, down 30% from a year earlier. Some other annuities are also being discontinued, until their markets "develop further." (Previously sold variable annuity policies that remain in effect will be maintained.)
Whatever the reason for the discontinuation, I'm glad it happened. Variable annuities generally just stink. They tend to carry high annual fees of as much as 3.5%. They can also lock your money up for a long time, charging you hefty penalties if you want out. Even their tax advantage is iffy. The earnings in the annuity will grow tax-deferred, but they'll eventually be taxed at your income tax rate, which currently goes as high as 35%. Compare that with dividend-paying stocks, for which dividend income and long-term capital gains are currently taxed at 15% for most people.
Worse yet, some insurers are now requiring variable annuities buyers to invest at least 30% in bond funds. That mandate limits buyers' upside potential, since stocks generally outperform bonds.
Unfortunately, insurers are not shutting down variable annuities in droves. Overall, sales of the product through financial institutions are actually rising at a rapid pace.
The top variable annuity sellers include Prudential
If you're looking for investments to support your retirement, think twice or thrice before opting for ugly variable annuities. Most of us would be better served by fixed annuities or strong dividend-paying stocks. Learn more about sound retirement-planning strategies in our Rule Your Retirement service.
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Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. Try any of our investing newsletter services free for 30 days. The Motley Fool is Fools writing for Fools.