Q: I’m 43 years gold with two kids. In 2009, I opened an account for a variable annuity with an initial payment of $10,000. I’ve been putting in $500 per month. I have no idea how it really works. All I know is it will provide me a pension for life.

I’ve heard rumors that a variable annuity is a bad investment, but every time I ask my financial advisor, he said not to worry and don’t listen to those rumors. I need to hear from you before I go further and ruin my retirement plan.

A: First, do you think your current financial advisor is giving you objective advice? If he earns commissions on the annuities he recommends to you, your best interest is unlikely to be his top priority. And if you already believe he’s withholding information, you can’t be making good decisions regarding your financial planning. My first piece of advice would be to find an advisor who will put your financial interests first. That means requiring the advisor to act as a fiduciary. That also means not working with someone who earns a commission from the sale of an investment. You want to work with someone who is selling only their advice, not products.

As for variable annuities (VAs), it’s hard to give specific advice since I don’t know your full situation. In general, I don’t recommend them as an investment vehicle. The negatives associated with VAs are:

To continue reading go to 5 Reasons to Avoid Variable Annuities

America’s baby boomers—those born between 1946 and 1964—face a problem that could weigh on the economy for years to come: The longer it takes for the economy to recover, the less money they’ll have to spend in retirement.

Policy makers have long worried that Americans aren’t saving enough for old age. And lately, current and prospective retirees have been hit on many fronts at once: They have less money, they earn less on what they have, their houses aren’t rising in value and the prospect of working longer to make up the shortfall has dimmed significantly in a lousy job market.

“We will have to learn to make do with a lot less in material things,” says Gary Snodgrass, a 63-year-old health-care consultant in Placerville, Calif. The financial crisis, he says, slashed his retirement savings 40% and the value of his house by about half.

Banks, home buyers and bond issuers are all benefiting as the U.S. Federal Reserve holds short-term interest rates near zero to support a recovery. But for many of the 36 million Americans who will turn 65 over the next decade—and even for the 45 million who have another decade to go— the resulting low bond yields, combined with a volatile stock market, are making a dire retirement picture look even worse.

Low yields present retirees with a difficult choice: Accept the lower income offered by safer bonds, or take the risk of staying in the stock market. Either way, their predicament could put a long-term damper on the consumer spending that typically drives U.S. growth.

“If these rates stay as low as they are, then a lot more people are going to be hurting,” says Jack Van Derhei, research director at the Employee Benefit Research Institute. The non-partisan outfit estimates that if current conditions persist, nearly three in five baby boomers will be at risk of running short of money in retirement. “There are going to be many luxury items that will simply have to be eliminated,” for retirees to make ends meet.

Despite the market’s rebound from the lows of 2009, nest eggs remain severely impaired. As of the first quarter of 2010, net household assets—homes, 401(k) plans, pension assets and other investments minus debts—stood at $54.6 trillion, down 18% from the end of 2007. That’s an average of about $171,000 per person, much of which is concentrated in the hands of the wealthiest.

At the same time, the return people can hope to earn on their assets has fallen, particularly for those who switch into bonds or annuities to guarantee a fixed income. The average yield on U.S. government, corporate and mortgage bonds stands at about 2.4%, while stock-market valuations suggest a long-term return of about 6%. At those levels of return, some 59% of people aged 56 to 62 will be at risk of not having enough money to cover basic living and health-care costs in retirement, estimates Mr. Van Derhei. If market returns are higher—8.9% for stocks and 6.3% for bonds—the picture isn’t a lot better: The percentage at risk falls to about 47%.

Before the recession hit, many economists assumed people would solve their retirement problems simply by staying in the work force longer. Now, “the recession has blown that idea out of the water,” says Alicia Munnell, director of the Center for Retirement Research at Boston College and co-author of a 2008 book that advocated working longer.

Older workers, who typically fared better than their younger counterparts in recessions, have been hit just as hard by layoffs this time around. As a result, the fraction of people 65 or older who are working has leveled off after a long period of growth. As of July, it stood at 15.9%, down from 16.3% in mid-2008.

For the rest of this article, go to the Wall Street Journal.

Brokers at each of the firms operated out of branches of affiliated banks, selling VAs, mutual funds or UITs to bank customers, who, in many instances, were elderly. The brokerage customers were referred by bank personnel, and sales of these financial products represented a significant portion of each firm’s business.

For the rest of this story…

FINRA Fines Bank B-Ds For Variable Annuity Sales

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“Forewarned is Forearmed: How to Purchase an Annuity (or not) You Will Never Regret!” is a valuable resource for those contemplating the purchase of an annuity. If your local bank investment sales person is pushing the idea of an annuity, be sure to do your  homework and read “Forewarned is Forearmed” first. Click on the hyperlink to read more about “Forewarned is Forearmed.”

This underscores the importance of what I have attempted to do with Forewarned is Forearmed: How to Purchase an Annuity (or not) You Will Never Regret! In Forewarned, among other things, I related how you can uncover the tremendous costs of most annuities and make an informed decision as to whether or not the guarantees they offer are worth it. In my opinion, they generally are not.

For those interested, you can read more about Forewarned is Forearmed, the first E-Book publication for Capital Markets U.com, at cmubooks.com.

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“Investor Education for Main Street America”

There are lots of questions, aren’t there?

Forewarned is Forearmed was written to be a consumer protection book. There has been so much abuse in the United States in the past few years that there have been special Alerts issued by the SEC, FINRA and several State’s Attorney General Offices warning about abusive annuity sales efforts. Forewarned is Forearmed will provide you with both factual data about annuities and some recommendations for how to evaluate an annuity offering and decide if it may be right for you.

To get more details about Forewarned is Forearmed, visit the special Forewarned is Forearmed page where you can learn more and add it to your shopping cart.

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“Investor Education for Main Street America”