Why People Don’t Buy Annuities
Well it may surprise some of you to know that I don’t sell an annuity to everyone who calls. Rational or not, plenty of people choose to not use annuities in a retirement plan or they just delay the decision because big commitments are hard to make. I spend a lot of time reviewing notes from my meetings. It helps me identify trends, improve communication and enhance strategies based on changes in market conditions.
Over the years I have met with hundreds of people who have been doing exactly what you’re doing, trying to make sense of the options and find a plan that works. So I put together a list of the main reasons why people don’t buy annuities. Some choose to avoid annuities altogether and others decide to do business elsewhere.
Whatever the reason I figured it might help for you to realize that lots of other people have dealt with the same dilemmas. If you can identify with any of the situations below then I’ve offered a little reasoning that will hopefully help you move forward when the time is right.
1) Market volatility
Lots of people have a specific portfolio value goal and until the benchmark is met, no changes will be made. This is especially true these days since October 2018 was the worst month for the S&P 500 in seven years! It’s hard to look at a decreased portfolio and sell securities when down in value. Don’t forget that the stock market is still at a very high level and the last two years have produced excellent returns. A slight draw-down after such aggressive growth is quite normal so recent turmoil shouldn’t cause any great concern. The question is always where will it go from here? The market may resume its climb in the next couple months or it may drop even further. By all means chase the growth you want but don’t take on unnecessary risk that may negatively affect your retirement.
2) Waiting for interest rates to rise
I’ve been hearing this since I started my career 16 years ago. But rates steadily fell and only recently rose slightly. The truth behind rate movements is that it takes a long time to see a substantial increase. Delaying retirement decisions based on interest rates is not rational. Rather, interest rates should help you decide what kind of strategy is more appropriate. In today’s market the value is found in short-term products and this means that traditional products and advice are fundamentally flawed. Most of the arguments I receive come from other advisors and it shows that most don’t do anything but regurgitate an institutional sales pitch. Stick with advice relevant to current conditions that give you the opportunity to make changes over time.
3) Information overload
Everyone experiences this when shopping for annuities. Opinions are diverse and most advisors try to justify their own biases. Misrepresentations and lack of experience is the source of much of the information you will receive. The science of asset distribution is very new so new products don’t always fit with the old way of thinking. The numbers never lie and sound strategies are backed by fundamentals. This is a hard barrier for many to cross so don’t worry if you need a little extra time to sort things out.
4) Life is hectic
Pre-retirement can be a busy time. Moving to a new location, kids in college or grandkids visiting are just a few of the things that make many feel as though there’s just too much going on to concentrate on finances. I meet a lot of people who go into retirement not knowing what they need from a portfolio. If so, the decision of whether to protect money or let it continue riding the market hasn’t been quantified. Protecting money and putting things in place for retirement doesn’t always mean buying an annuity. Interim steps can be taken so you don’t risk more than needed and allow you to save the big commitment until you have more time to focus.
5) You don’t know what you don’t know
All sales presentations are made to sound great. The majority of people start searching for answers after they see the first pitch. You don’t specialize in this area so it can be difficult to know if you are really making the best move. Asking for a comparison to all approaches is a good first step to solving this problem but that can also be hard when you don’t know what questions to ask. Take a step back and look at all safe money options, which are not as diverse as you think. Compare based on yield, time horizon and liquidity to find the one that offers the benefits and flexibility that you need.
6) You want to work with someone local
It takes a big leap of faith to make major financial changes in retirement no matter where the advisor is located. My goal is that you get the best plan for your needs and if you can get that locally then go for it. But it’s no reason to accept a less than ideal product or plan. Using technology to your advantage can open you up to more products, better strategies and a level of convenience that no conference room can provide. In the end it’s up to you but you need to understand that I’m still in business because I often beat the competition.
7) You and your spouse can’t agree on a plan
Communication is the key to success. You may like one advisor and plan but your spouse likes another. Different plans come with different benefits and if you can’t agree on which is better then you probably don’t have the best deal. This offers you an excellent opportunity to define every goal you have. In all likelihood you are both right, you just don’t have all the information and the best option in front of you yet.
8) Alternative investments seem more exciting
Earlier this year I had an interesting series of meetings. One particular gentleman came to me with a very specific goal of retirement income. He had seen one proposal and liked it but wanted to know if I had something better. I showed him a variation of the Flex Strategy that fit his situation and as usual my numbers were quite a bit better than what he had already seen. Thinking I had a new client, we spoke again just a few days later. He thanked me for my time and said he had decided that instead of buying an annuity he planned to invest the money in a family mining business in South America. Wow… talk about opposite ends of the spectrum! If protecting assets is not your primary reason to consider annuities then you should probably save the effort and spend your time analyzing different speculative investments.
People run into this roadblock all the time and it relates to all of the above in some way. It’s the same reason why it took my wife more than a year to decide what kind of new car she wanted. Salesmen in every industry are skilled at convincing you his or her product is the best option, even though it may not be. In the financial services industry there’s a difference in the type of advice you receive. One is based on the suitability standard which means a recommendation needs to be reasonable for your situation. The other is the fiduciary standard which says the recommendation has to be in your best interests. That doesn’t make it any easier to decide who is telling the truth. I see as much fault in many fiduciary plans as I see in plans based on the suitability standard. The only answer to this is learning to trust yourself. You need to analyze the options in front of you and choose the strategy that fits your best interests. I’ll do my best to justify any recommendations and disclose all contingencies but in the end it is up to you to decide.
Most of the time I hear one of the objections above it’s the last time I talk to a person. I can only speculate as to the outcome but I assume that most don’t make any serious changes while some regrettably fall for the dinner seminar pitch. There are plenty of reasons why people don’t buy annuities or even just why they don’t buy annuities from me. If you fall into one of the above categories or have a different reason for not using annuities in retirement I’m fine with that. I just want to be sure you make decisions based on solid analysis.
Enjoy your weekend…