Vanguard, Schwab and Fidelity Offering New Investment Options to Retirees

There are a lot of financial planners which make most of their revenue from the commissions that they earn by selling financial products. Of course, there’s a natural tendency for them to sell the products that earn them the highest commissions so that they can make the most money. Unfortunately, the highest commission products are almost always some of the worst performing, high-free products. Some unscrupulous planners have tried to sell their clients, often elderly clients, into some of these products even though it wasn’t in the clients’ best interest to do so.

Some of the products that are often pitched to seniors looking for a steady income rather than a large amount of new investment grow are different types of annuities.  Financial planners will call them a lot of different things because they have a negative connotation associated with them, but variable annuities are the most common. The idea is that a person will invest their money and receive a fixed amount of money per month in return with the possibility of earning more if the market does well. This type of investment in-and-of itself isn’t a bad thing, but these products have such high-fees and commissions that the rate of return that investors receive is severely depressed. There are also some products which investors will lose 100% of their money if they pass away before the annuity matures, leaving his/her family with nothing from the investment.

In response to this, Vanguard, Fidelity, and Schwab have all come up with new alternatives to traditional annuity investments which will allow retirees to invest their funds as they choose in the stock market, bonds or other investments, then the investment companies will in-turn write a check to the investor every month based on the earnings made per month. This is a much better option than a variable annuity because the fee-structures are just about the lowest in the industry (the fees are minimal, and there’s no commission), so your rate of return is much higher. In addition, there’s no penalty for passing away since it’s an actual mutual fund that you’re investing in, so you can be sure that your relatives will receive the full benefit of the investment if you were to die.

Be sure to note that there is a difference between the products offered by these three companies. The fee structure will be slightly different between them and the type of investments you can make in them will vary as well. It’s also important to note that Fidelity’s plan invests based on when you plan on dying, which affords you a larger check each month, but if you were to live longer than you were expecting, you could find yourself without any money to live on at the end of your life. With Vanguard’s and Schwab’s new retirement options, the goal is more to preserve your capital rather than giving you the largest check per month, so your nest-egg will be around as long as you need it to.