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I’ve disliked variable annuities for many years because of their high fees and onerous surrender penalties. Now, low-cost variable annuities are available that slash fees and do away with the surrender penaltie

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

s. Does this change my opinion on the use of variable annuities? Read on to find out.

There is $1.8 trillion dollars invested in annuities and a lot of that money is in variable annuities. To put this in persp

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

ective, there are $2.1 trillion in 401(k) assets. That’s right. There’s almost as much money in annuities as there is in 401(k) retirement programs!

As I’ve mentioned in previous articles on variable annuities

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

(available at www.guardingyourwealth.com), variable annuities are sold because of two main features—tax deferral and a death benefit guarantee.

Tax-deferral is emphasized if you are investing non-retirement mo

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

ney. Instead of having to pay taxes on dividends, interest and gains each year, those taxes are deferred until you withdraw the money from the annuity.

This used to be an attractive option, but not since capit

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

al gains and dividend tax rates have been lowered to a maximum of 15%. You see, earnings withdrawn from an annuity are taxed at higher ordinary income rates. These can be as high as 33%.

In years past there wa

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

n’t much difference between ordinary income tax rates and those on dividends and capital gains. Now, there is a substantial penalty when earnings are taxed as ordinary income. As a result, it can take decades b

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

efore you really see the benefit of tax-deferral.

The other main selling point of variable annuities is the death benefit guarantee. Investors like the peace of mind knowing that even if the market drops subst

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

antially, their heirs will get at least what they initially invested when they pass away. This is used to entice investors to choose an annuity for their IRA where the annuity’s tax-deferral feature is worthles

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

.

Unfortunately, investors had to pay through the nose for those benefits—typically 1.4% of the value of your account each year. On a $200,000 account, you would be paying $2800 a year. Over ten years it is li

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

kely those benefits would cost over $30,000. That’s some of the most expensive insurance you will ever buy.

Now there are new, low-cost variable annuities available from companies like Fidelity and Vanguard th

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

at lower the costs of these benefits. For instance, Fidelity offers one that charges ?% in fees each year. That’s 1.15% less each year then the typical variable annuity. The Fidelity variable annuity still offe

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

s the much touted benefit of tax-deferral but it does not offer the death benefit guarantee.

If the death benefit is the main reason you want a variable annuity, you can achieve that goal with the Fidelity var

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

iable annuity by purchasing a separate term life insurance policy. Doing so would save a 60-year old non-smoking man almost $15,000 over ten years versus the typical variable annuity.

As investors age, these s

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

avings decrease. But even then, you have to realize that your ‘guarantee’ is actually much higher with a private life insurance policy than it is with the broker-sold variable annuity. In the broker-sold variab

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

e annuity, your either get the market value of the contract OR the death benefit, whichever is higher.

When you buy a low-cost variable annuity and a separate life insurance policy your heirs receive the marke

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

t value of the annuity PLUS the death benefit of the life insurance policy. Even if the annuity loses half of its value, your heirs still end up with 50% more than the broker sold annuity. So even if it costs t

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

he same it is still more benefit. And you can keep the insurance policy even if you cash out your annuity.

The only situation I would recommend a low-cost, no surrender penalty variable annuity is if you curre

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

tly have non-retirement money in a high-cost variable annuity and you have amassed a significant gain. Even if you have surrender charges, it may be worthwhile—see how many years it would take to make up the di

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

fference.

For everyone else, I still do not recommend it. If you have IRA money in an annuity, I suggest a non-annuity IRA when your surrender penalties end. You can achieve the same benefits for far less cost

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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