DOLLAR$ AND SEN$E:

BY CHRIS HANLY
Investment Consultant, Gary Goldberg Financial Services

Frustrated with your Variable Annuity? Follow Warren Buffet’s lead:

Warren Buffet is probably the most revered investors of our time and one of his favorite types of businesses are Insurance Companies. This got me thinking. My firm, Gary Goldberg Financial Services, has become known for its expertise in retirement planning and knowledge of Variable Annuities, which are issued by Insurance Companies, including several that Mr. Buffet owns. I asked myself, why does one of the most successful investors of all-time want to issue Variable Annuity Contracts?

It surprised me to learn that over 60% of investors who own a Variable Annuity with a life-time income rider never actually utilize the benefit. In other words, they are paying for (most likely as a result of an enticing sales pitch) a benefit that they are not using, or are not taking advantage of the benefit to the fullest extent. I like Variable Annuities as part of a sensible plan and retirement solution for our clients. To me, a Variable Annuity is a way to transfer investment risk to an insurance company. It appears that Mr. Buffett agrees, and is clearly betting that this trend continues – in particular the trend of miss-understanding and underutilizing this product. I think Mr. Buffet knows and understands that most investors continue to deal with advisors, brokers, and insurance representatives that lack the skills and expertise to properly position and utilize these products; hence their bad reputation. Let’s face it – Variable Annuities are complicated and, unless used to their fullest extent, expensive.

Most investors understand that Variable Annuities provide a way to invest in mutual fund like accounts, aka sub-accounts, on a tax deferred basis. However, although often sold to investors for their appealing living benefit riders, for instance an income-for-life benefit, most don’t know when to trigger this living benefit – if ever. This is of course critical to a successful investment program that incorporates Variable Annuities. In an effort to help, we released a video that details some of the most common mistakes that investors make when buying a Variable Annuity. Our firm’s President, Oliver Pursche, recorded the video. He is a skeptic of Variable Annuities, which is why we asked him to lead this project. It’s all too easy to find the good in annuities when you believe in their power, having someone who is skeptical dissect them and judge them is one of the ways Gary Goldberg Financial Services ensures we use this retirement tool properly. He found that there were a number of common errors including: #1 – Placing too much emphasis on the living benefit and not enough emphasis on selecting the best underlying investment choices; #2 – Being overly focused on the “lock-in” frequency of the living benefit; and #3 – Not understanding how the living benefit rider impacts the underlying portfolio performance of the Variable Annuity. If you own a Variable annuity, and you are not convinced that you are utilizing this instrument to the fullest extent of its capabilities, I encourage you to call me to receive a complementary, no obligation portfolio review. If you call, I’ll also provide you with a copy of our DVD, free of charge to you.

Christopher Hanly is an investment consultant with Gary Goldberg Financial Services in Suffern and can be reached at (845) 368-2900 ext. 247 or chris.hanly@garygoldberg.com.