Actually I have a cousin who’s in this situation so that’s why I was curious. He wants to start investing for retirement (his other priorities are taken care of: no debt, large emergency fund, owns a car, etc.) but since he’s going to school full time and not working, he asked me what his options were. Initially I told him to just wait until he starts working and just continue to save his money in a bank, but he’s eager to start investing now to take advantage of the down market. He has a chunk of money that he doesn’t need in the next five years and wants to put it to work for the long term. Hearing that, I wasn’t sure what he could do or what account he could open.

That is just wrong. While AIG covers the news only 2 or 3 insurance companies went under last year vs tens of banks.

But I think it is discussed, actually I said above about the Triple AAA rating?

It would really depend on how long you want to invest for. You might want to invest for retirement and that might be ok but consider:
a. after school, you will start working
b. after school, you may want to buy a home or have other large expenses. You might need that money so you may want it liquid. Remember, if you buy an annuity, you really can’t touch the money until you reach 59 1/2.

Hope that helps.

For people who don’t qualify for tax advantaged accounts, say a non-working college student, is it advisable to go with tax advantaged investments in a taxable account?

If anything, this makes me want to know more about the various tax advantaged accounts. Thanks Neal.

I appreciate your question. I can see how an annuity (under special circumstances) might help someone create retirement income – see my comments to My Journey please. But the annuity makes estate planning even more difficult.

When a person dies, the annuity gains are taxed at ordinary income and the beneficiary has 5 years at most to withdraw the funds.

Life insurance might be a better way to go for estate planning. Lots of tax benefits there.

My Journey….I was going to say the same thing about your comment. I really appreciate your articulation and calm tone. Great to be able to discuss…huh?

I appreciate the professionalism of accepting an alternative view rather than dismissing it without giving it at least a review!

Nice work.

I agree that under unique circumstances, a life annuity could work. If the investor is advanced in age and if interest rates are high enough, it could be a wise decision. As I’m sure you’ll agree, it depends on the clients’ circumstances.

It’s just that in 25 years, I’ve only encountered one case when it made sense but I’ve met countless people who were sold this “solution” when it didn’t fit.

On the variable side, I see your point and it’s well made but I have to respectfully take issue. The riders are available – at a cost. Usually, investors can get those same benefits with lower costs.

There are a few reasons; all of them bad.”

I completely agree that it shouldn’t be done for tax reasons, but what about other reasons.

Assuming we are talking about fixed – could one reasonable reason be, to provide a steady stream of income from a company that is rated better than most Municipals?

Even if we are talking about Variable – could a reasonable reason be, to take advantage of various riders that may “cost” a lot but provide a minimum benefit like a guaranteed income or withdrawal regardless of how the market does?

I think these products have gotten a bad rap during up swings in the market like we had experienced, but they are Thriving in popularity right now accross the board cause you are letting an insurance company take the risk for you.

Disclaimer: I do not own a qualified or non-qualified annuity.