Should I Buy A Guaranteed Life Annuity With My 401(k) Money To Avoid Market Downturns?

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Welcome to Ask Clark, a column designed to answer your financial questions, by money expert Clark Howard.

I Have $1 Million in My 401(k) Accounts and Was Offered a Guaranteed Life Annuity. Should I Take It?

James from Georgia asks: “Hey Clark, I know how irate you get when someone brings up the word ‘annuity,’ but I’m thinking it might not be a horrible idea in my case.

“I have close to $1 million in 401(k)s, but they are subject to downturns in the market. I was offered a guaranteed life annuity with a 6.3% payout that included a stop-loss clause of 10%.

“I can’t afford to take a loss in the market like 2008 as I’m currently 55 and interested in retiring soon. What’s your suggestion?”

Clark’s Take on Whether Someone With $1 Million in 401(k) Accounts Should Buy a Guaranteed Life Annuity

Clark says: Although it’s hard to tell exactly what type of life annuity is being offered, you should be able to find better — and safer — options for your money by meeting with a fee-only financial planner.

Clark is still not a fan of annuities and he says, with $1 million at stake, the caller should beware. Here are some red flags:

  • The annuity itself: “The reality is that these annuities tend to put extreme handcuffs on you, massive built-in expenses and fees,” Clark says.
  • The 6.3% payout: “A normal immediate payout annuity would be paying significantly less than 6.3% right now because of how low interest rates are,” he adds.
  • The guarantee: “The guarantees only come your way if you do exactly what the contract says, which in many cases will mean you must keep it in force potentially for decades,” Clark warns.

Your Best Option: A Fee-Based Financial Planner

“I would love it if you would go to a fee-only financial planner, somebody who if they did feel that your situation called for some form of annuity, that it would be one that they were not receiving any commission from and you would not have to worry at all.”

“Please, before you make any decision with $1 million, the cheapest advice you can get is paying somebody upfront fees to give fee-only advice where they are not influenced or subject to commissions,” he says.

Want more information? Here’s how to choose a financial advisor and how much one costs.

To hear Clark’s full take on this question, listen to the segment from his podcast:

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If you have a question but don’t want to go on-air, contact Clark’s Consumer Action Center for free money help.

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