Software Assesses Annuity Pluses
It’s understandable why investors have poured nearly $206 billion into variable-annuity insurance contracts. They allow you to defer tax on an investment of unlimited size, pay a death benefit if you die before you retire and can pay you a guaranteed income for life.
What’s not so understandable is the variable annuity - and whether its tax savings outweigh its higher costs and limitations.
Consumers long have had to rely on the annuity salesperson for the answers, a disadvantage that has put some people into ill-fitting annuities and made many investors leery of a potential money-saving tool. Enter mutual fund giant T.Rowe Price of Baltimore, which has overcome the concerns of the Securities and Exchange Commission to offer the free software that lets investors crunch the numbers themselves.
As a rule of thumb, a candidate for a variable annuity is someone who already has maxed out a pretax retirement account such as a 401(k) or Individual Retirement Account, wants shelter from a high tax bracket and is willing to invest aggressively over years.
The problem is rules of thumb can’t cope with dazzling complexities that arise if you want to analyze whether you’d come out ahead investing directly into a mutual fund and paying the taxes each year.
“Variable Annuity Analyzer” is handy because it can be adjusted to reflect what-if factors, including your expected rate of return, and how long you expect to live. Its analysis doesn’t assume you’ll withdraw your entire bundle at once. Instead, it lets you see what would happen if, for instance, you wanted a lifetime income stream or you wanted to bail out early and eat the penalties.
That’s not to say the software doesn’t have limitations. There’s no way, of course, to accurately predict in 1995 how high tax rates will be 10, 20 or 30 years from now.
And you can’t substitute another company’s annuity for T.Rowe Price’s No-Load Variable Annuity.
“Variable Annuity Analyzer” requires Windows 3.1. To order a free diskette, call (800) 341-0790.