Do you hate all restaurants or all annuities?
The Annuity Man
Annuities seem to be an easy target for misleading ads and misinformed financial journalists to spread the “annuity hate speech” to the believing public. Like the bullies picking on the kid that never punches back, the annuity industry has yet to organize as a group and factually go after these false messengers. For the life of me, I have no idea why!
If I was in charge of the annuity industry, I would literally have a well-funded “factual war room” that would aggressively go after these false messages and inform the public where and how annuities can properly fit into a portfolio. There is a demographic tidal wave of over 10,000 baby boomers retiring every single day that are looking to transfer risk and secure contractual guarantees. It’s a factual fist fight between the Wall Street "machine" and the Life Insurance/Annuity "deep pockets" to see who can attract our aging population that controls the majority of investable assets.
I Hate ALL Restaurants…and my Social Security payments
Not all restaurants are good. Not all mutual funds are good. Not all bonds are good. Not all annuities are good. Nod your head because all of those examples make sense.
Unless you are the biggest hypocrite on the planet, you can’t hate annuities while loving your Social Security payments. Both provide a transfer of risk income stream that you can never outlive. Both offer guaranteed payments that are primarily based on your life expectancy at the time you start the income. In other words, the older you are the higher the payment. Both are annuity structures.
I Hate ALL Stocks…and my company pension
Just to pile on a little bit more…are all stocks good? Of course not. Same thing can be said about annuities. No financial product category is perfect. Nod your head again.
The word “annuity” is a broad brush that can’t describe the different types of annuities available today. Each has it’s own benefit propositions and limitations. MYGAs (Multi-Year Guarantee Annuities) and FIAs (Fixed Index Annuities) are both principal protection products that compete with CD returns. SPIAs (Single Premium Immediate Annuities), DIAs (Deferred Income Annuities), QLACs (Qualified Longevity Annuity Contracts), and attached benefit Income Riders all provide a lifetime income stream that you can never outlive. VAs (Variable Annuities) provide tax-deferred growth. CGAs (Charitable Gift Annuities) provide an income stream and a tax-break as well.
So when you spew the “I hate annuities” mantra, which type are you talking about? If you still say that you hate them all, then I will respond with another ludicrous statement...“I hate all money managers.” Game. Set. Match.
All Annuities are Expensive?
Saying that "all annuities are expensive" is another ridiculous statement that comes out of the mouths of seemingly educated people. SPIAs, DIAs, QLACs, MYGAs, and FIAs (without riders) all have no annual fees. What’s that thing about “expensive” again?
Of all annuity types available, Variable Annuities (VAs) have the highest annual expenses, but you can also buy a no-load VA that has no annual fees and 100% liquidity day one. FIAs (Fixed Index Annuities) have no annual fees unless you decide to attach a rider at the time of application.
I think what most “annuity haters” are referring to when it comes to “expensive” is opportunity cost. Comparing investments to annuities is the ultimate example of an apples to oranges comparison. Annuities are contracts. They are transfer of risk strategies. Period.
Agenda Driven Ads & Fake Financial News
The money behind most of the “hate annuity” ads come from money managers or stock market type investment firms. You can’t charge an annual wrap fee on a SPIA, DIA, QLAC, or MYGA…so those are “dead assets” to the fee-based securities industry. In other words, there’s an agenda behind the ad campaign.
In a world of “fake news” accusations, most financial pundits are not well versed when it comes to the different types of annuities. I blame the annuity industry for this lack of needed education, but the misinformation continues with the majority of articles that I read.
Bad people in every industry
Every industry that sells a product has “bad actors” that enhance a bad reputation. The annuity industry is no different. With fixed annuities being regulated at the state level, and some annuity internet promotions reflecting the wild west, too many over-hyped sales messages go unregulated. If you think herding cats is impossible, try overseeing an army of annuity agents that get paid solely on commission!
The bottom line is that annuities are contracts. They are not for everyone, but annuities do provide transfer of risk contractual guarantees that many people want and need. That’s a fact.
So the next time someone says “I Hate Annuities” or you see or hear an advertisement echoing something similar, you know that there is either an agenda or lack of education behind the message….or both.