My Biggest Mistake with Annuities

There’s a lot to learn in this business. Much of it requires consuming massive amounts of information and just about everyone is capable of doing that. The rest is an experience that only comes from seeing things change and develop over the years. My experience with using annuities has made me ever more confident in the advice I give but I recently realized that I missed something obvious.

My numbers are solid and I don’t make a recommendation unless I believe it’s the best option. I’ve sent hundreds of people away because I didn’t have the solution they needed. But for those I can help there will always be justifiable skepticism for a variety of reasons. My approach is different, I live closer to Canada than any other state, and retirement planning changes are big commitments. It can be a difficult transition.

So after looking back at several prospects, clients, and seasoned contracts, I’ve learned something that can make it much easier to move in the right direction. Since retirement allocations are kind of a big deal, it makes sense to step into things slowly. Some have more money than others but no matter who you are, moving 25% to 50% of your portfolio isn’t something you do every day.

For years I’ve been telling people that I have the luxury of looking at a situation objectively because I’m detached from the emotional connection that you have with your money. So I’ve always taken the information a person gives me and worked things around until I found a solution. It’s easy for me because I’ve already seen all the things you really won’t know about annuities until you’ve owned one for a couple of years. People who have them usually buy more so it stands to reason you should start small if you’re hesitant.

There are several reasons why this can make things even better but the biggest reason is that you don’t have to jump into a major commitment until performance is proven. Get through a year or two, see some performance, and realize the company isn’t going to screw you by dumping rates a couple of years into the contract. In most cases, growth in the contract offsets surrender fees in 2-3 years and that’s an enlightening moment for many people.

Make a call to the company and ask to make a withdrawal even if you don’t want one. You’ll find out how nice the employees are. About the only question you have to answer is, “would you like us to mail a check or do you prefer direct deposit?” A lot of the contracts I recommend work just like an online bank account.

Aside from starting with a smaller commitment, there is also an advantage to having multiple contracts. With a single contract you either win or lose based on a single point in time. Recently, contracts that reset in February did great while those that reset in March did not yield much. It won’t happen like that every year but it will happen. If you have the contracts laddered with different starting points then you have the chance to catch the market at different points and your fortune won’t rest on one single day. This will result in more consistent performance for those of you who question the ability of a contract to yield as illustrated.

There are plenty of people confident enough to make rational decisions quickly but it’s not everyone and not even most people. Most people need to see proof and I support that. There are several of you who didn’t take my recommendation, yet, but would probably be better off if you had done a little bit of it.

As an example, if I say your plan requires 50% of assets in an annuity my recommendation has changed. If you are comfortable making the big commitment then at the very least split the purchase between two or three contracts on different starting dates. If you’re skeptical then start with much less and take time to understand how things really work. It’s long-term planning so it won’t hurt anything to put the plan in place over a few years and it may enhance the benefits even more.

Keep it simple and take it at a pace that works for you.


Further readings

Fixed Indexed Annuity Guide

Fixed Indexed Annuity Withdrawals

How Much Do Fixed Annuities Pay?

Last Updated on May 10, 2024 by Bryan Anderson