Could a deferred annuity be the answer?

Ask NJMoneyHelp

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Q. You had a story about whether it’s smarter to give cash or an IRA to adult children.  Would buying them a deferred annuity make sense? Or maybe a deferred annuity in your name with them as the beneficiaries (so they can’t sell off future annuity payments if they need cash now)?
— Mom

A. We love to see people get creative with financial help for those they love, but this would be a costly way to go.

Generally, annuities have higher expenses because they are insurance-based products, said Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton.

He said most have expenses around 4 percent.

“If you compare that with an S&P 500 index fund of around .02 percent, the annuity would have to outperform the index fund by around 40 percent due to the additional fees on an annual basis, which I feel is impossible,” Lynch said.

He said he would start with an index fund, and as the account grows larger, consider moving into other areas of the market to diversify.

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