Accountable Update

The Three-Legged Chicken of Investments: Why Guaranteed Products Aren't Always What They Seem

Have you heard the tale of a three-legged chicken? It serves as an apt metaphor for the "too good to be true" products marketed to unsuspecting investors. Recently, a client of mine was reminded of this tale when dealing with a complex Guaranteed Minimum Withdrawal Benefit (GMWB) variable annuity. Sold by a "friend" years ago, this annuity promised guaranteed income and stock market growth. Unfortunately, it turned out to be more of a cautionary tale than a golden goose.

Years later, the underlying investment value hadn't grown significantly. My client had been paying high annual fees—over 2%—which steadily eroded returns. When he wanted to move the account, he faced hefty surrender penalties, as high as 7%. Thankfully, we found a solution that helped him preserve his investment, but it underscored the dangers of chasing unrealistic guarantees.

For anyone considering "guaranteed" products, let me share a story about a chicken...

Convert (to a Roth IRA) Now, Before the Tax Man Cometh

Picture this: You're at the pearly gates of financial heaven, but instead of Saint Peter holding a ledger, you've got Uncle Sam with a calculator in his hand. Before you get in, he’s going to add up everything you owe. For those of you that have done a decent job of saving in your retirement accounts, the cost of entry may be a mighty cross to bear. But what if I told you there's a way to baptize now and avoid that hefty tax bill later?