6 Retirement Products That Aren't Worth Your Money

By Tim Lemke on 19 January 2016 4 comments

Saving for retirement is actually quite simple. But there are many products out there that make it seem more complicated than it actually is. Others simply cost more than they're worth.

As you approach retirement age, you may hear about all kinds of ways to ensure that you have enough money to continue to live comfortably. But steering clear of the following products may ultimately help you keep more money in your pocket.

1. Variable Annuities

A variable annuity might make sense for those approaching retirement, but generally doesn't for those who are already retired. That's because the idea behind a variable annuity is that you invest a sum of money and get a stream of income at a future date. Try to access your money early, and you might pay a penalty. Current retirees are better off with an immediate payout annuity, which requires you to pay an up-front lump sum, and then provides regular payments immediately. It's worth noting that variable annuities can have fees of as much as 3.5%, according to Kiplinger.

2. Reverse Mortgages

We've all seen the ads on television, and the concept seems simple enough: You use the equity in your home to help fund your retirement via a guaranteed income stream. Reverse mortgages are a legitimate retirement product, but there are downsides, including high closing costs and fees. Plus, the equity in your house won't last forever, and by tapping it, you leave less for your heirs when they inherit the home. (See also: 5 Downsides of a Reverse Mortgage)

3. Long-Term Care Insurance

It's daunting to think about the costs of your care as you age. Assisted living and nursing home care can cost anywhere from $40,000 to $90,000 a year. A long stay in a nursing home might mean you'll outlast your savings and leave very little to your family.

An insurance policy for long-term care might seem like a good investment, but it's important to know that the premiums can run upwards of $2,000 annually for a healthy couple at age 60. If your golden years are healthy and more independent than you expected, you may pay more in premiums than what your care would cost. Retirees are likely better off investing well and trying to save as much as possible for their retirement — unless they have good reason to believe they'll make use of long-term care facilities or services.

4. Whole Life Insurance

On the surface, whole life insurance seems like a swell product: You get life insurance along with some tax-free growth. But whole life insurance is generally more expensive than term life insurance, and the investment returns are usually less than what you might find elsewhere.

5. Junk Bonds

It certainly makes sense for retirees to have bonds in their portfolios, but they should steer clear of these types of high-yield bonds, which don't perform particularly well unless the economy is doing great. And if the economy is doing poorly, they could be crushed. If you're close to retirement and still looking for yield, take a look at stable dividend stocks instead. If you want safety, go with lower-risk bonds or cash.

6. Non-Traded REITs

Real estate investment trusts (REITS) can be great investments for retirees, because they offer high dividend income with low volatility. However, there are some REITs that are public, but not traded on any public exchange. The Financial Industry Regulatory Authority has issued a warning about these products, because upfront fees are high, and they are often difficult to sell. If you want real estate in your portfolio, look to some of the larger REITs like Simon Property Group or Boston Properties, or find a good REIT mutual fund or ETF.

Where are you keeping your retirement funds?

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Guest's picture
S Jones

Whole life insurance is much cheaper at retirement age when initially purchased at a young age. Eventually the dividend growth exceeds the premium and the policy can become self-sustaining without reducing the death benefit. It's not a great vehicle for protecting against the loss of a wage-earner with dependents; term is a better buy. But it is a great vehicle for protecting an estate by providing cash at need - if you decide when you're young that you're likely to have an estate worth protecting when you're old!

Guest's picture
BobT

I generally agree but to lump in the insurance products on a wholesale basis is asinine. People are living longer than ever before. The majority of states have financial incentives in place for long term care insurance and whole life can serve a very important viable and cost effective purpose for some nearing retirement. Neither are appropriate for everyone but to say to avoid them and have scant data to back it up is irresponsible.

Guest's picture
ALTCP.org

Long-term care insurance is not for everyone but it is still very relevant today and provides benefits that other insurance products can’t give such as coverage for myriad types of care facilities and services.

It’s still a good financial tool given the fact that the cost of care is soaring and opting to pay out-of-the-pocket is not a good idea. The annual cost of a private room in a nursing home is $91,250 today while it is $80,300 for a semi-private room. After five years, these rates will increase by 4%. You will most likely exhaust your savings or worse, you’ll become a financial and emotional burden to your loved ones.

It’s like this:

You might need insurance for long term care but other people might not benefit from this. So it’s best to talk to a care planner or a long term care specialist in order to receive expert advice and thus come up with a well-informed decision.

Guest's picture
HereToStay

Wow - this is really really bad advice! Long term care is a MUST if u can afford it AND a reverse mortgage can be a life saver for the elderly that are poor but have home equity and want to die at home. also, 'junk' bonds absolutely gave a place in a portfolio rhat is diversified. Who wrote this!???