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Do you hate annuities?  Dispelling the myths with facts

 

Do you hate annuities?

In a recent USA Today article, Why I hate annuities: Here are the reasons these investments are bogus, Ken Fisher boldly starts out by stating “I’d die and go to hell before selling an annuity”.  In his next breath he says he is not talking about single premium immediate annuities but seems to bash deferred annuities of any type.

“I’m not referring to simple immediate “fixed” annuities that convert one lump sum to income. Those can be OK, done right.  But deferred annuities – “variables,” “indexed” and “deferred fixed” – are bogus.  Here, you upfront cash for a contract that pays later.  Meanwhile, your principal contract value supposedly grows.”

Hopefully Ken does really understand that a fixed or indexed annuity is going to grow guaranteed, not supposedly.

We often run into clients who want to protect their assets today and decide tomorrow what to do with them.  They want to protect their principal from a sudden market decline they won’t have time to overcome.  Fixed or indexed deferred annuities protect principal and grow tax deferred.  Later, a client can decide to take an income.

Ken goes on to bash variable annuities because of their loads.  Is he not aware of the VA’s available on RIA platforms?  These plans offer much more competitive variable annuity products by lowering the fees inside and limiting insurance options and riders.  These new products take some of the validity away from his statement.

It is his closing line which makes him look even more outdated and set in his ways:

“Yes, my advice is conflicted – my firm often helps people exit deferred annuities. My opinion remains, regardless. All but simple immediate fixed annuities should be outlawed because buyers almost always misunderstand what they’re buying. It’s one step from fraud. Everyone deserves more transparent and flexible investments.” 

At least Ken admits his conflict and bias and tells us he has no intent on offering insurance solutions no matter what their client needs or wants.

Click to read The USA Today article:  Why I hate annuities: Here are the reasons these investments are bogus

The value of guaranteed lifetime income continues to rise. 

A recent study sheds some light on a perspective Ken might be trying to share – income riders can be more costly than a SPIA.  They came to the following conclusion: “The dominant guaranteed lifetime income alternative is GLWBs (Guaranteed Lifetime Withdrawal Benefit Riders) on Variable Annuities and Fixed Indexed Annuities primarily because they provide flexibility in the event of a change in circumstance.  This comes at a cost, but historically not high enough to overcome the illusion of control.”

They also address Ken’s bias noting: “Historic emphasis on recurring commissions and/or AUM-based fees has disadvantaged the selling of income annuities”.  In their closing action items, they note: “Many more retirees would elect annuitized income if presented the option. For many retirees, a mixture of both “lifetime annuitized income” and “ad-hoc discretionary withdrawals” from retirement savings may be optimum.” 

Click here for the full study:  2018 Guaranteed Lifetime Income Study

Market forces show interest in annuities of all types.

Ken is certainly right about the fact that some clients are better off without an annuity.  But the market forces continue to show interest in annuities of all types.  For most people, running out of money is their biggest fear.  Annuities are uniquely designed to provide a lifetime guaranteed income.  Forecasted Monte Carlo analysis can leave some clients feeling queasy and uneasy.  When you present the results to a 65-year showing they have an 85% chance their money will last to age 90, I assure you some clients are worried if they are in the 15% quartile in addition to the concern of living past age 90.  Thus, the reasonableness of the income study premise that some mixture is best.

Behavior modification is a large part of financial planning.  Perhaps Ken should open his mind and consider utilizing annuities in the retirement planning process for certain situations and clients.  There are certainly clients who will sleep better and worry less if they had enough steady guaranteed income.  They fit especially well for your more conservative clients in good health, especially if there is longevity in the family.

 

 

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