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Ask Dave

The Variable Annuity Option

Dave and his wife are retired and completely debt-free. They have an annuity that has matured with $235,000 in it. They have another $100,000 in cash. Where would Dave suggest they place it?

QUESTION: Dave in Orlando and his wife are retired and completely debt-free. They have an annuity that has matured with $235,000 in it. They have another $100,000 in cash. They aren’t sure what to do with this money. Where would Dave suggest they place it?

ANSWER: Investment real estate is a possibility. Obviously, mutual funds are a possibility—some good growth stock-type mutual funds and diversifying across several funds to get some safety with investing this money.

Regardless of where you put it, it’s still money you don’t need today and you can leave it alone for it to grow money later. You don’t even need an income off of it today, I don’t think, the way you’re talking.

The third possibility is what you were talking about. I don’t like the life annuities and that kind of stuff, but there’s a possibility you might want to use some of this in a variable annuity. A variable annuity is a mutual fund inside of an annuity or a series of mutual funds inside of an annuity. The upside of that or the good things about it is that it does grow tax deferred like a good 401(k) does.

It does, for estate planning purposes, you can name a beneficiary on it, and it passes outside of probate, so it keeps the state of Florida’s hands off of it when death occurs. The better ones these days are designed in such a way that the product guarantees your principal and will guarantee you at least X in interest, usually around 5% or 6% minimum, or growth rather on the mutual fund inside of there. That’s if you leave it alone a certain number of years, they’ll guarantee the principal and they’ll guarantee that, so in the event of your death or even in the event you just wanted the money out if it’s gone down, you’re protected against a downturn in the market.

So those are kind of nice as you reach retirement age and everything’s paid for and you’ve maxed out everything else like you have, and you might do some of that with your mutual fund investing. I am 53. I don’t have any of those because I don’t want my money that tied up, and I’m willing to take the risk in the market of it going up or down because I’m very comfortable with the history of the market and the length of time that I’ve got to invest.

The downside of the variable annuity is 1) it’s tied up and 2) you’re being charged extra fees, not just the mutual fund fees but also the annuity fees. It’s not double the fees, but it is an extra fee in order to get those other features—the guaranteed principal, the guaranteed interest, outside of probate passing, and some of those kinds of things. So you might check if you want to learn more about those or learn more about just mutual fund investing.

You need to do something with it. I wouldn’t put it in a CD. It’s not going to make enough in a CD to do squat. You don’t need the cash today. If I were in your shoes, I would go mutual funds and/or mutual funds inside of an annuity known as a variable annuity to get some of those features. If you want more info, go to and click on Endorsed Local Provider (ELP) for mutual funds.