Dear Mr. Berko: My wife and I are in our early 70s, are retired from good jobs and have no children. Our joint account (enclosed) has $1.23 million, and our two identical individual retirement accounts are worth $549,000 each. We own our home, which is worth about $170,000, free and clear. Our car is paid for, and we have no debts. We are very careful about spending on things we don’t need and are very conservative in the market, as you can see from the investments in our three accounts.
We’re very concerned that the stock market is going to crash. We attended a steak-dinner sales pitch and were impressed with the annuity of an A-rated insurance company that has been in business for almost 100 years. There would be no commissions or annual fees, and we could take a 10 percent withdrawal every year. The annuity is invested in mutual funds; if the stock market were to go up, our investment would go up, but if the stock market went down, our investment would stay the same. For the past 20 years, the mutual funds in this annuity have averaged between 3 and 9 percent a year. And the insurance company would give us a bonus of 10 percent if we invested $500,000 and 15 percent if we invested $1.23 million. It sounds as if we couldn’t possibly lose and we could make a 15 percent profit immediately if we turned our $1.23 million joint account into this annuity. I don’t exactly understand how this annuity works, and your advice on what to do would be appreciated. I’m afraid the market will have a huge correction, and I think the annuity would protect us. Should I invest $1.23 million for safety?
— T.T., Springfield, Ill.
Dear T.T.: This salesman wants to take you to the dry cleaners, the carpet cleaners and the sewage cleaners. That’s common in cities such as Springfield; the closer you are to a state capitol the more the morals of annuity salesmen resemble those of the legislators inside. My advice is to stay the course with the excellent stock selections in your accounts.
But for your information, I’ll ask you six questions about the annuity, the name of which you haven’t shared with me. Then you must pose the same questions to your salesman.
