# Prudential's variable annuity with Highest Daily Lifetime 6 Plus income benefit...



## frenchieinme (Sep 4, 2010)

Does anyone have specific information on Prudential's variable annuity Highest Daily Lifetime 6 Plus Income Benefit?  By specific I mean preferably has anyone taken one of these out and if so what are your thoughts and results? 

The variable annuities are not for everyone.  As an annuity they play a role in some retirement plans for certain people.  I have a pretty good idea how it works and would like input from someone who has taken one out or knows much about it.

There are fees attached to it for the lowering of risk such as for the HD Lifetime 6 plus and the spousal HD Lifetime 6 Plus.  I am looking for someone who has taken one out and see how these fees have affected the bottom line of the annuity's account value and guaranteed protected withdrawal value.

For those of you new to this concept, you give Prudential a set amount (say $100,00 as an example) and they guaranteed the withdrawal value after 10 years (providing you have not made any withdrawals) will be at least $200,000 which you can use for an annuity which will pay you 5% (for ages 65 to 84 when the annuity starts paying out fixed amounts) until you die and if you have the spousal benefit then it goes to your spouse until she dies.  That 5% of the protected withdrawal value or the account value whichever is greater.  If your two value accounts are over $200,000, then the 5% is off of the greter of the 2.

frenchieinme


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## philemer (Sep 4, 2010)

Every article I've read, by those who don't sell them, says to stay away from VA because of the high fees. Do a google and see what you find. I'm an insurance agent and I wouldn't buy one. Buy a good mix of no-load mutual funds instead.


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## ricoba (Sep 5, 2010)

philemer said:


> Every article I've read, by those who don't sell them, says to stay away from VA because of the high fees. Do a google and see what you find. I'm an insurance agent and I wouldn't buy one. Buy a good mix of no-load mutual funds instead.



I second this advice.  From my understanding a VA is a much better deal for the life agent than it is for the customer.


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## Passepartout (Sep 5, 2010)

I own a similar product from this company.  An immediate annuity that I bought after retirement to provide uninterrupted, stable lifetime income. Mine does not have the ongoing spousal payout. She just gets what's left after I achieve room temp. I think mine is 'Highest Daily Lifetime 7' (iirc). All my eggs are not in this basket. This, along with SS, provides an income 'floor' for me. Could I have bought mutual funds? Sure. Would they deposit a check every month into my account for the rest of my life? I don't know. What I do know is that through the gyrations of the stock market, interest rate risk in the bond market, and other uncertainty, I can sleep well.

Maybe the broker who sold my annuity to me made a commission. I hope he did. The product has paid me a monthly check, increased in value each month, and increased the payout quarterly. If the market value of the underlying securities (yes, mutual funds) declines, the insurance aspect kicks in and locks the value (of my annuity) at the funds' highest daily amount.

I suppose that I could continue to be 'fully invested' as I once was and watch the markets and move in-and out of various funds/stocks/bonds with all my nest egg, but frankly, I prefer to have the peace of mind and ability to travel away from the financial press and minute-by-minute contact.

Not likely I'd have bought a VA during my working years- I didn't. The costs were too high for the payout, but after retirement the security seemed worth it- again, I stress, for a portion of one's funds.

Sorry to ramble, and this may not be for everyone, or anyone, but it works for me at this stage of my life.

Jim Ricks


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## Rose Pink (Sep 5, 2010)

How much do these things cost?  Did you pay a one-time fee or is it a recurring fee?  Just curious.


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## frenchieinme (Sep 5, 2010)

philemer said:


> Every article I've read, by those who don't sell them, says to stay away from VA because of the high fees. Do a google and see what you find. I'm an insurance agent and I wouldn't buy one. Buy a good mix of no-load mutual funds instead.



Being an insurance agent as you said, would you sell this VA with its high fees to someone who is a gvt retiree with a gvt pension and SS that covers all normal living expenses who was looking for more diversification to an already diversified portfolio of varied allocations?

Presently our portfolio of diversified allocations has been doing very well bringing in a plus 2.5% when in the same period the market was down over 5%.  Not being satisfied with this, I was thinking maybe this VA (with its various attached fees for the Highest Daily Lifetime 6 Plus Income Benefit and the spousal benefit) might further diversy and solidify in the long run a specific amount of money because one of the benefits is a guarantee that what ever amount I put into this VA will double the Protected Withdrawal Value.  That means if one has let's use $200,000 (for discussion purposes) presently and wants to guarantee a $100,000 VA in 10 years from now, investing $100,000 today in this product helps guarantee a $200,000 VA which will pay at a 5% rate for the rest of my life and then the rest of my wife's life if I die first.  If the account value is more than the withdrawal value or if the withdrawal value is greater than $200,000 account value due to market conditions, then the VA pays out at 5% of the greater value amount.

I would not consider using this as a base product for my retirement.  This I see can have the potential of being a good product to further diversify and take some risk out of possibly volatile times.  Now VA are usually tax-deferred products (this one is anyways) which means  the payouts are taxable.  *Whereas I would be funding this from my Roth-IRA then any and all payouts would be trax free.*    What I need to do is research if this is a good product for me and if so what amount should I fund it with?  

What do you think?

frenchieinme


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## frenchieinme (Sep 5, 2010)

Rose Pink said:


> How much do these things cost?  Did you pay a one-time fee or is it a recurring fee?  Just curious.



That is what I am looking into.  Regardless, if the $$$ goes untouched for 10 years they *guarantee* the withdrawal value will be double the initial investment.  To be more specific, the HD Lifetime 6 Plus has an annual benefit charge of 0.85% and the spousal benefit has an annual benefit charge of .95%.  Now how that affects the doubling the withdrawal account value is something to be looked into.  This product is not for everyone by any means.  As part of a greater whole, I can see value.

frenchieinme


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## John Cummings (Sep 5, 2010)

I assume you are referring to Prudential's American Skandia product. I have owned these products for a few years now. I have 2 accounts with them. One I am drawing income from and the other I am not yet. They are a major part of my very diversified portfolio which is professionally managed. I am retired.

They are an excellent product and have served me very well. They outperformed the market on the upside prior to the crash and fared much better on the downside. I have a guaranteed income stream based on the highest value attained. Sentiment toward variable annuities has shifted recently to positive. People really need to do thorough research and not just echo the same old stuff. Things do change.

There are 2 values, the contract value, and the guaranteed income withdrawal value. The contract value is like any mutual fund and follows the market. The guaranteed income withdrawal value increases daily at either a 5% annualized rate or the market value, whichever is the highest during the period when  no withdrawals are made. The income you can withdraw is 5% of the highest value ever attained. In other words, the guaranteed income withdrawal amount does not go down. If you hold it for 10 years with no withdrawals then the value is doubled.


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## John Cummings (Sep 5, 2010)

frenchieinme said:


> That is what I am looking into.  Regardless, if the $$$ goes untouched for 10 years they *guarantee* the withdrawal value will be double the initial investment.  To be more specific, the HD Lifetime 6 Plus has an annual benefit charge of 0.85% and the spousal benefit has an annual benefit charge of .95%.  Now how that affects the doubling the withdrawal account value is something to be looked into.  This product is not for everyone by any means.  As part of a greater whole, I can see value.
> 
> frenchieinme



There were no upfront sales charges. There is a substantial surrender charge for the first 4 years if you cash it out.

You do not have to leave the funds untouched for 10 years in order to benefit. The withdrawal value increases daily from the start at a guaranteed annual rate or the market value, whichever is the highest. There are several different options available with this plan. Mine increases at 5%.

For example, I started withdrawing from one of them when the guaranteed income withdrawal value skyrocketed due to the market increase prior to the crash. My guaranteed income withdrawal value is 50% higher than my initial investment and it cannot go down. That 50% increase was in 4 years. The other account, I am not withdrawing from yet.


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## Kal (Sep 5, 2010)

Just remember, the agent and the insurance company WILL almost always make their money. Their bet is the holder of the VA will not outlive the actuarial tabled age. The longer you live, the better you do. Just remember, once you give up the money, it's gone and you can not get do-overs. 

Older policies had a 6% and higher *payout rate*. New policies are now close to 5%. The change was simply to make sure the insurance company made money. If you're looking at a 5% number, you're at the low end of the scale.

A second issue is the early *termination penalty*. Anything more than 5 years is not good as there will always be a new and better VA around the corner, e.g. a 6% payout rate.

Another key factor is the *stability* of the insurance company. What happens if they go under? For me, the state of WA back-ups all VA policies up to a face value of $500,000*, so at least there is a second tier of protection. Even then, the trick is to draw down the face value as fast as possible (without penalty) and reinvest that draw-down money. Once the face value is exhausted the guaranteed payout takes over and you're playing with house money. You've got your money back.  My problem is I keep withdrawing the allowed annual amount, but the policy is like an "energizer bunny" and keeps earning more than the withdrawn amount.

_* The state must approve issuance of any VA policy, so they have a level of fiduciary control._


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## easyrider (Sep 5, 2010)

Are the earnings from these annuities taxed as regular income or are the earnings tax exempt ?

Thanks
Bill


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## frenchieinme (Sep 5, 2010)

John Cummings said:


> I assume you are referring to Prudential's American Skandia product. I have owned these products for a few years now. I have 2 accounts with them. One I am drawing income from and the other I am not yet. They are a major part of my very diversified portfolio which is professionally managed. I am retired.
> 
> They are an excellent product and have served me very well. They outperformed the market on the upside prior to the crash and fared much better on the downside. I have a guaranteed income stream based on the highest value attained. Sentiment toward variable annuities has shifted recently to positive. People really need to do thorough research and not just echo the same old stuff. Things do change.
> 
> There are 2 values, the contract value, and the guaranteed income withdrawal value. The contract value is like any mutual fund and follows the market. The guaranteed income withdrawal value increases daily at either a 5% annualized rate or the market value, whichever is the highest during the period when  no withdrawals are made. The income you can withdraw is 5% of the highest value ever attained. In other words, the guaranteed income withdrawal amount does not go down. If you hold it for 10 years with no withdrawals then the value is doubled.



John, do your policies have a HD Lifetime 6 or 5 or whatever amount Plus Income Benefit and maybe also a spousal Income Benefit?  

frenchieinme


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## John Cummings (Sep 5, 2010)

frenchieinme said:


> John, do your policies have a HD Lifetime 6 or 5 or whatever amount Plus Income Benefit and maybe also a spousal Income Benefit?
> 
> frenchieinme



Yes, though both accounts are not identical as one is newer than the other. However they are essentially the same.


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## John Cummings (Sep 5, 2010)

easyrider said:


> Are the earnings from these annuities taxed as regular income or are the earnings tax exempt ?
> 
> Thanks
> Bill



Both of mine are in an IRA so all withdrawals are taxable.


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## John Cummings (Sep 5, 2010)

Kal said:


> Just remember, the agent and the insurance company WILL almost always make their money. Their bet is the holder of the VA will not outlive the actuarial tabled age. The longer you live, the better you do. Just remember, once you give up the money, it's gone and you can not get do-overs.



That is not true in this case. You can cash it out whenever you want. There is a declining surrender charge if cashed out in the first 4 years. After 4 years there is no charge. There are also spousal benefits.

I don't have an agent. My portfolio is managed by an independent CFP/Enrolled Tax Agent that has his own business. His charges are fee based on wealth management and not product commissions. I have known him and the others in bis business personally for 25 years long before he managed my business.


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## Kal (Sep 5, 2010)

John Cummings said:


> That is not true in this case. You can cash it out whenever you want. There is a declining surrender charge if cashed out in the first 4 years. After 4 years there is no charge...


 
That's correct.  Here, I was thinking the short term within the penalty period.  Even then, you may not get your money back after considering the amount of the penalty AND the current value of the investment.  If the investment is under water at the time of selling you take a hit, perhaps a big hit.


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## Kal (Sep 5, 2010)

John Cummings said:


> Both of mine are in an IRA so all withdrawals are taxable.


 
Only taxable if the withdrawal is removed from the IRA. If the withdrawal is reinvested within the IRA, it's a different story.


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## zinger1457 (Sep 5, 2010)

John Cummings said:


> That is not true in this case. You can cash it out whenever you want. There is a declining surrender charge if cashed out in the first 4 years. After 4 years there is no charge. There are also spousal benefits.
> 
> I don't have an agent. My portfolio is managed by an independent CFP/Enrolled Tax Agent that has his own business. His charges are fee based on wealth management and not product commissions. I have known him and the others in bis business personally for 25 years long before he managed my business.



My understanding is that the fees are steep after adding in the insurance options, >6.5% per year, and get deducted from your cash out or contract value every year.  So any year your account is gaining less than 6.5% your cash value will be less than when you started the year.    If your account gained an average of 6.5% per year at the end of 10 years your cash out would be what you started with.  John, is this correct?


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## frenchieinme (Sep 5, 2010)

John Cummings said:


> Yes, though both accounts are not identical as one is newer than the other. However they are essentially the same.



That's good.  My question then to you is when and how are the fees for each the HD Lifetime 6 Plus Income benefit and Spousal benefit taken?  Is it a once a year thing, monthly, every time a lock in occurs? Does it show on a statement?  

frenchieinme


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## Passepartout (Sep 5, 2010)

easyrider said:


> Are the earnings from these annuities taxed as regular income or are the earnings tax exempt ?
> 
> Thanks
> Bill



Mine are taxed as regular income. Jim


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## John Cummings (Sep 5, 2010)

Kal said:


> If the investment is under water at the time of selling you take a hit, perhaps a big hit.



That is true of any investment in equities. It would be foolish to cash-out if the contract value was under water because the protected withdrawal value Will never be under water. It increases in value daily period.


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## John Cummings (Sep 5, 2010)

Kal said:


> Only taxable if the withdrawal is removed from the IRA. If the withdrawal is reinvested within the IRA, it's a different story.



I was assuming withdrawal from the IRA. It would not make any sense otherwise.


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## John Cummings (Sep 5, 2010)

zinger1457 said:


> My understanding is that the fees are steep after adding in the insurance options, >6.5% per year, and get deducted from your cash out or contract value every year.  So any year your account is gaining less than 6.5% your cash value will be less than when you started the year.    If your account gained an average of 6.5% per year at the end of 10 years your cash out would be what you started with.  John, is this correct?



First let me qualify this by saying there are many different variable annuities. I am referring strictly to the 2 Prudential American Skandia variable annuities that I own. Prudential acquired American Skandia a few years ago. American Skandia was the largest distributor of variable annuities. Prudential offers many other variable annuities.

There are NOT any annual fees. As long as you are not making withdrawals, the contract value follows their investments like any mutual fund. The "guaranteed withdrawal value", which is separate, increases daily at the rate of 5% annualized or the market value, whichever is the highest. If the investment portfolio appreciates at 5% or higher than the contract value and "guaranteed income value" will be the same. If the investment portfolio does not appreciate by at least 5% than the contract value will be lower than the "guaranteed income value".

When you start to make withdrawals, then the withdrawal amount will be a fixed percentage of the "guaranteed withdrawal value". In my case it is 5%. At this point the "guaranteed withdrawal value" will only increase by the amount the investment portfolio appreciates. In other words the guaranteed 5% increase is no longer in effect. The "guaranteed withdrawal value never decreases from its highest level. You take your withdrawals monthly or quarterly. I take mine monthly.

The contract value is also affected when you start withdrawing. The withdrawal amount is deducted from the contract value. Any appreciation in the investment portfolio is offset by the withdrawal amount. This is not a fee because you are receiving the withdrawal amount.

This product was the best investment I could have made based on my age, and the market at the time I bought it. This does not mean it is good for everybody.

Because of this product, my income stream was not affected very much by the market crash.


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## John Cummings (Sep 5, 2010)

frenchieinme said:


> That's good.  My question then to you is when and how are the fees for each the HD Lifetime 6 Plus Income benefit and Spousal benefit taken?  Is it a once a year thing, monthly, every time a lock in occurs? Does it show on a statement?
> 
> frenchieinme



The simple answer is no. There are no direct fees.


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## frenchieinme (Sep 5, 2010)

John Cummings said:


> The simple answer is no. There are no direct fees.



John, are the distributions received from your VA taxable?  Usually at the end of the year one receives a 1099 form indicating how much was received and then how much is taxable. 

I am planning on funding mine out of my Roth-IRA thus avoiding any tax what so ever.  Most VA are tax-deferred investments not tax-free ones. 

frenchieinme


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## classiclincoln (Sep 5, 2010)

All investments have fees.  Some you see, some you don't.  And everyone who sells annuities gets paid from the insurance company, no matter what type of "professional" they may call themself.  All distributions from an annuity will generate a 1099; the type of account it's in will determine how much, if any is taxable.


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## John Cummings (Sep 5, 2010)

frenchieinme said:


> John, are the distributions received from your VA taxable?  Usually at the end of the year one receives a 1099 form indicating how much was received and then how much is taxable.
> 
> I am planning on funding mine out of my Roth-IRA thus avoiding any tax what so ever.  Most VA are tax-deferred investments not tax-free ones.
> 
> frenchieinme



I can't answer that as both of mine are in my IRA so all withdrawals are taxable for me. The taxes are withheld each month per my instructions. I am going to be speaking to my financial adviser on Tuesday so I will ask him. This thread raised a few other questions for him.

When I set up my retirement plan with my CFP, I had a pretty complicated scenario. I had my own business and was incorporated and had a defined benefit plan. When we consolidated all my 401K's, SEP's, Pension Plans, etc., I ended up with a pretty large rollover IRA.


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## Kal (Sep 5, 2010)

frenchieinme said:


> ...when and how are the fees for each the HD Lifetime 6 Plus Income benefit and Spousal benefit taken? Is it a once a year thing, monthly, every time a lock in occurs? Does it show on a statement?
> 
> frenchieinme


 
With regard to fees, most VA establish the value at the end of each trading day.  That value includes the deduction of fees which are the annual fee prorated to a daily basis.  You never see the fees but they're taken out before the daily value is published.


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## Jaybee (Sep 5, 2010)

Jim...We're sort of in the "same boat" as you are.  We got annuities after being retired a number of years, and paying a LOT of taxes.  Our agent gets good commissions, I'm sure, but we get good monthly income, while the balance increases, and we pay little, or nothing in taxes.  I don't know where the bad rap for annuities came from, and I agree that we wouldn't have bought them while we were still working.  I like the stability.  We still have a portfolio that I can play with, but I'd hate to depend on my instincts for security.   We have variable annuities, mostly in ETFs. 



Passepartout said:


> I own a similar product from this company.  An immediate annuity that I bought after retirement to provide uninterrupted, stable lifetime income. Mine does not have the ongoing spousal payout. She just gets what's left after I achieve room temp. I think mine is 'Highest Daily Lifetime 7' (iirc). All my eggs are not in this basket. This, along with SS, provides an income 'floor' for me. Could I have bought mutual funds? Sure. Would they deposit a check every month into my account for the rest of my life? I don't know. What I do know is that through the gyrations of the stock market, interest rate risk in the bond market, and other uncertainty, I can sleep well.
> 
> Maybe the broker who sold my annuity to me made a commission. I hope he did. The product has paid me a monthly check, increased in value each month, and increased the payout quarterly. If the market value of the underlying securities (yes, mutual funds) declines, the insurance aspect kicks in and locks the value (of my annuity) at the funds' highest daily amount.
> 
> ...


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## frenchieinme (Sep 5, 2010)

John Cummings said:


> I can't answer that as both of mine are in my IRA so all withdrawals are taxable for me. The taxes are withheld each month per my instructions. I am going to be speaking to my financial adviser on Tuesday so I will ask him. This thread raised a few other questions for him.
> 
> When I set up my retirement plan with my CFP, I had a pretty complicated scenario. I had my own business and was incorporated and had a defined benefit plan. When we consolidated all my 401K's, SEP's, Pension Plans, etc., I ended up with a pretty large rollover IRA.



John, this is one of the benefits o9f TUG.  When people keep emotions and sentiments away and honestly deal with facts then questions one may not have thought of originally then surface making for even better and improved decision making.  I have found the input in this thread very beneficial and revealing to me.  

I have a series of questions to ask my financial advisor myself.  It looks like this particular VA may have a home in making my retirement redzone period more productive.  Time will tell as I have to contact him after Labor Day and set up an appointment.  Some of my questions have been answered in this thread.  :whoopie: 

With the advances made in financial planning over these last 10 years, one now has even better methods/tools for better capital preservation in uncertain financial times.  For instance, in 2010 one can move (recharacterize) an amount of $$$ from traditional IRAs to Roth IRAs and opt to pay taxes in 2010 or spread it out in equal distribution amounts in 2011 & 2012.  These are options not available to me when I retired in 2002.

The moral of the story here is even though one is retired, financial retirement planning never stops.  One needs to stay on top of things all the time and keep reviewing where one is and where one plans to go making the best with one has at hand financially speaking.  

frenchieinme


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## John Cummings (Sep 6, 2010)

frenchieinme said:


> With the advances made in financial planning over these last 10 years, one now has even better methods/tools for better capital preservation in uncertain financial times.  For instance, in 2010 one can move (recharacterize) an amount of $$$ from traditional IRAs to Roth IRAs and opt to pay taxes in 2010 or spread it out in equal distribution amounts in 2011 & 2012.  These are options not available to me when I retired in 2002.
> 
> The moral of the story here is even though one is retired, financial retirement planning never stops.  One needs to stay on top of things all the time and keep reviewing where one is and where one plans to go making the best with one has at hand financially speaking.
> 
> frenchieinme



I agree 100%. I also retired in 2002. My financial adviser and I are continually reviewing my retirement plan. I talk to him on the phone at least once a week and we meet in person every couple months. Fortunately, he is not only a CFP but also a tax specialist. He saved me thousands of dollars in taxes over the past few years.


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## philemer (Sep 6, 2010)

These articles seem like an unbiased analysis on VA. There are a number of fees, most you don't "see":  http://www.soundinvesting.org/varannuits.html#vch  Everyone should do their own due diligence & see what's right for them.

Here's another article by Smart Money: http://www.smartmoney.com/personal-finance/retirement/whats-wrong-with-variable-annuities-9512/


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