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Beware Advisors Who Only Recommend Annuities


In the Dallas Morning News Business section, Scott Burns answered a reader’s question about using annuities for retirement.  The question, “My advisor recommends annuities only. What should I do?,” brings up the issue of advisor ethics.  It’s hard to ensure that your advisor has your best interests in mind at all times, but it is one of the most important qualities to look for in an advisor.  Immediately upon reading this question, I am concerned that an advisor wouldn’t recommend a balanced retirement plan, using annuities with other investments and retirement income.

The man asking for advice is 61 years old and plans to retire in about a year from now.  He’s had a difficult time losing all of his gains in the stock market over the past decade and is now invested in fixed indexed annuities.  His current advisor recommends a plan to use annuities over the next 25 years, purchasing a new one every five years to take advantage of interest rate changes and increasing age.  While the reader is confident with the security of annuities, he asks for advice to make sure that using annuities is his best option.  He has followed the first 15 years of the plan and is wondering if he might be best suited to search for annuity products on his own for the last 10 years of his retirement plan, despite potential confusion.

Before considering annuities in your retirement, the author recommends making sure you have three other things in place.  Social security, an annuity in essence, is the first thing.  Then you should have all of your debts paid off, including your mortgage.  Finally, you should have a nest egg of savings that is liquid, flexible, and diversified.  Annuities are next.  Once you have those three pillars set up, people with $100,000 or more of income that don’t have an employer pension should look into purchasing annuities to finance the rest of their retirement expenses.  He says that laddering annuities is a good strategy, but recommends using life annuities rather than what the reader is currently using.

Life annuities are simple and guarantee you lifetime income so that you don’t have to worry about covering your expenses in retirement.  This author is not a fan of fixed indexed annuities because they are more complicated than traditional annuities and their interest rate can vary.  But fixed indexed annuities do offer some benefits not included in traditional life annuities, such as giving the option of death benefits when you die.  Some annuity products are right for some investors, you just have to tailor your plan to your specific needs.  For this, we recommend speaking with an expert because they know the details.  Finding an advisor with your best interest in mind, who has a diversified plan for your retirement, is key.

Written by Rachel Summit

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