Press Room
Press Responses

March 17, 1999

Mr. John Huey
Managing Editor
FORTUNE
Time & Life Building
Rockefeller Center
New York, NY 10020

Dear Mr. Huey:

At a time when millions of baby boomers are concerned about saving enough money for retirement that may last 20-30 years, Carolyn Geer in "How to Get Out of an Annuity," which appeared in the March 29, 1999 issue of FORTUNE, does them a great disservice by summarily dismissing a valuable retirement planning tool.

Writing that tax deferral of variable annuities "comes at a steep price-namely, high fees ... and capital gains that are taxed at higher ordinary-income-tax rates when withdrawn" is oversimplified and, thus, misleading. A 1999 study by PricewaterhouseCoopers (PwC) compared mutual funds to variable annuities after the most recent change in the capital gains tax law. It concluded that for the average variable annuity and mutual fund investment, based on historical investment performance of funds for an 11-year period (1987-1997), the after-tax payouts of variable annuity investments are substantially larger than those of mutual fund investments for holding periods as short as 10 years.

There are various reasons why the change in the capital gains tax law does not significantly effect the attractiveness of variable annuities. Mutual fund investors are subject to taxes on any capital gains realized on the sale, exchange or redemption of their mutual fund shares, and these taxes eat away at their investment gains. Variable annuity owners, on the other hand, can exchange among subaccounts as frequently as their investment needs and market conditions dictate, since there are no tax consequences from these exchanges. Moreover, most funds are managed for total return-not tax efficiency. Across all mutual funds, the PwC study found that almost half of the total return was paid out in the form of dividends and short-term capital gains, taxable at ordinary income tax rates.

Geer fails to acknowledge the many investors who are happy with their variable annuity purchase. The Gallup Organization conducted a survey of annuity holders in 1998 and found that 84% feel they have saved more money with an annuity than they would have if the annuity had not been available. And many-89% of those surveyed-agree that annuities are an effective way of saving for retirement.

No product or investment is perfect for everyone, and investors need to fully understand their alternatives so that they can make their choices based on their individual needs and circumstances. We share a common goal of educating the public about retirement planning and variable annuities, yet FORTUNE's article does not completely examine the features and benefits of variable annuities. We would welcome the opportunity to provide you with any further information. Please contact us if we can be of any assistance.

Sincerely,

Mark J. Mackey
President and CEO
National Association for Variable Annuities
Reston, VA

cc: Carolyn Geer