Over the weekend I read an article on the top 50 annuities. It was the weekly feature in a major financial publication. I can only conclude that someone has to pay to keep the lights on at the publication.
Most investors have a number of investing options they should do first, like max out their 401(k), IRA, Profit Sharing etc., before buying an annuity. The guys that need annuities most tend to have more pressing problems such as whether they should weekend on Nantucket or in the Hamptons. They have money.
Investors that don’t have a lot of money to spare should stay away from annuities, especially variable annuities. This is the worst of the bunch and they’re often sold with a full-court press by a salesman. Variable annuities are the 800 pound gorilla in the living room, comprising 80% of the category’s $142 billion in sales last year. They’re not liquid and they cost a fortune in fees.
A lot of investors will read the article as the Bible on annuities. And they’ll jump in headfirst. That’s a mistake. It was not a genuine piece. A lot of investors are going to end up with this crap in their portfolio because their broker read it.
I’ll give you two examples.
One advisor claims income annuities are better than 30-year bonds. I consider both to be questionable investments today. His reasoning was the bonds could lose value if interest rates go up. That’s true. But investors buying that long maturity should understand duration risk before buying. I don’t like the comparison. And annuities with fixed returns also suffer in comparison as rates rise.
Another broker that sells annuities said the whole model really depends on some dying younger than others. That’s how the model works. Someone has to pay, right? That’s how the math works. But the publication isn’t complaining. Someone has to pay to keeps the lights on.
Your success is a choice.
E.J. Smith - Your Survival Guy
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