Also, investors should be prepared to hold the contract for a long time. Malgoire said her firm has compared variable-annuity contracts with direct mutual fund investment and concluded it generally takes six to seven years for the annuity to show an advantage. Others also advised consumers to be sure of their purpose. Annuities work best for people looking for retirement income, said Steven Norwitz of T. Rowe Price. They do not work well as estate planning devices because, while they get favorable tax treatment earlier, they are treated more harshly in an estate than assets owned directly.
Some advisers remain cool to variable annuities.
Kathy Jatras of Organized Finances Unlimited, a financial planning firm in Arlington, advises many younger clients and finds annuities sometimes get substituted for life insurance, which she said is a bad idea for young families. Generally, I don't think they're very good. . . . Jatras also is wary of some of the sales pitches that still go with variable annuities. I'm a mathematician and it's really scary. It helps to understand what an annuity really is and how it works.