Say No To Annuities!!!
The negative comments give me more fuel than the positive ones. It’s the opportunity to educate and set the record straight and there’s always the chance I’ll learn something new. Some people have viable reasons for not liking annuities and there are certainly a fair share of people who have fallen for the wrong sales pitch. Others, however, have negative feelings about annuities only because of a bias for someone else’s opinion. I’m not sure which this one is but here’s the most recent negative comment.
SAY NO TO ANNUITIESSSSSSSSSSSSSSSSSS
I copied it directly from the email rather than count all the times he typed ‘S’. All caps means he’s yelling it, right? Believe it or not I kind of chuckle every time I get something like that. When someone signs up they are typically trying to learn something and it’s hard to understand why anyone with a strong bias would waste the time. Maybe it’s something I said. It would be nice to know why he said that because it might give me an even better topic to address. In either case some people don’t like annuities so I thought it would be nice of me to share a few of the ones I know, besides this guy.
The most obvious case is someone I mentioned last year in another podcast. A guy had inherited eight or nine annuities from his dad, who had just passed away. He was sifting through dad’s annuities when he discovered that many were only a couple years old, although dad had owned annuities for a couple decades. The paper trail revealed that the annuities had been surrendered every few years for a new contract with a bonus. This had cost his dad a substantial sum of money over time and the agent had made a small fortune doing it.
The total amount of money in annuities was nearly $3M and it’s a clear case of churning by an agent who should go to jail for this. After a couple decades of accumulation about half of the total amount was appreciation. There existed a verifiable reason for the son to either keep the annuities or exercise a death claim to roll the contracts into new annuities and avoid paying all the taxes upfront. But I knew better than to try to get any business from a guy who had a justifiable distrust of annuity salespeople. The dad should have said no to exchanging annuities but he didn’t so the son surely will.
Ken Fisher is the obvious one. He hates annuities doesn’t he? Well one of his clients called me last year. He was around 73 years old and really didn’t want that much risk. He came up with the crazy idea that an annuity might be a good place to put some money to protect it from a bad market. He only had to take required minimum distributions each year and a stable asset would make it safer to do so, not to mention would be likely to produce better performance across the entire portfolio in the long run.
But Fisher had this portfolio 100% in stocks. I’ve never seen a single model that suggests a risk averse 73 year old should be completely exposed to the stock market. Ken Fisher says no to annuities, no matter what, I guess. He never bought an annuity and probably lost at least a couple hundred thousand dollars last year because of it.
One client of mine, who I’ve worked with for six years, put half of his money in annuities and the other half with Fisher Investments when he retired. He emailed a few weeks ago to tell me his investment portfolio is back to where he started five years ago. That’s right, I beat Fisher.
If you buy an income annuity or a fixed rate annuity then you’ll be satisfied because the outcome is guaranteed. Indexed annuities, like I talked about last week, only have a promise of safety but no promise of yield. About eight years ago, I sold an index annuity to a great guy in his mid 60s because he wanted to reduce risk with about 20% of his portfolio. It was 2015 and in case no one remembers, it was the low point for interest rates with the ten year treasury paying around 1.5%. Initial projections showed a yield on the indexed annuity of just over 4%, which was really good for safe money at that time.
He bought the indexed annuity and it bumped along over the years. It was a seven year contract that came out of surrender in December 2021. He started with around $300K and after a nice withdrawal, ended up with about $400K, a hair under 4%. Rates started coming up so I told him to wait a few months and maybe roll it into something with a better rate. Well his wife was putting pressure on him to get rid of the annuity because it hadn’t done as well as their market investments. He said no to another annuity and instead decided to put it into ETFs with a local advisor. That was at the very top of the market so I’ll let you decide if that was a good idea.
Over the years I’ve heard from hundreds of people who are dissatisfied with an annuity purchase. Most of the regret came from variable annuities that were bought with poor market timing. In some really bad instances, companies had to seriously increase fees in order to keep reserves high enough to weather the storm. Hartford was one company that was nearly wiped out because of it and is no longer in the business of selling annuities. Again, that’s the stock market more than the annuity but you are taking on more risk using a variable product.
Many other people bought contracts without understanding restrictions like bonuses and income riders. Those types of things are presented incorrectly by agents all the time and a lot of people unfortunately find out the hard way. That is one of the biggest reasons I started this website. The goal is always to educate rather than sell at all costs. I say no to annuities more often than yes because of circumstances that are unique to each situation I encounter.
It’s hard to issue a blanket statement that marks all annuities with a negative review. It’s too broad a category and there are far too many useful ideas to make it a bad idea for everyone. Surely if someone were to sit down and write that book they would find even more reasons to say yes. Be objective and spend some time educating yourself so that you can say yes or no with confidence. I do the work so you don’t have to.
Podcast about Say No to Annuities!!!
What You’ll Learn from This Episode:
[2:44] Exploring the Negative Perceptions Surrounding Annuities
[6:39] Surrender Charge Annuities: Understanding the Implications
[8:59] The Benefits of Investing in Annuities During a Down Market
[11:30] Maximizing Returns Through Accepting Risk and Eliminating Volatility in Annuities
[11:54] Comparing Fixed and Income Annuities
[15:39] The Guaranteed Nature of Annuities
[16:46] Balancing Risk and Reward: An Analysis of Variable Annuity Products
[9:00] Annuity is a good place to put money in a bad market
[11:28] Accepting risk of loss and eliminating volatility will produce better results over time
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