Hate is a strong word. A lot of people say that they hate annuities without knowing much about them or considering the positives and negatives. I recently wrote about the National Association for Fixed Annuities’ response to some negative annuity advice given by Dave Ramsey. Along the same lines, Marketwatch’s Amit Chopra wants to offer the whole picture to people who have seen Ken Fisher’s “I hate annuities” advertisement. In the article, “Peace of mind doesn’t come cheap, nor should it,” Mr. Chopra offers consumers the whole picture on annuities rather than only offering up the negatives.
Variable annuities are certainly complicated products and they do have some drawbacks. Some have high commissions, surrender charges, few investment choices, and higher internal costs when you compare them to traditional investments like mutual funds. Unfortunately for the annuity industry, some unethical advisors sell variable annuity products to people when they shouldn’t. The negative side of variable annuities might outweigh the benefits for some consumers, but the benefits often outweigh any negatives when you look at the whole picture. Just because one person “hates annuities”, it doesn’t make them bad products for everyone. Look at the details in your own personal scenario.
One of the greatest things offered by variable annuities is peace of mind. You know what you are going to get at the end of your variable annuity contract and you will not get less than that. Mr. Chopra says that peace of mind comes at a cost and it is often a cost that is well worth it to investors. Predictable lifetime income is an important part of any retirement plan. For those who don’t have traditional pensions, a variable annuity with a lifetime income rider guarantees that you will receive a certain amount of income for the rest of your life. No traditional investments like mutual funds can offer any kind of guarantee like this. Some consumers are worried about leaving an inheritance behind after they die. If this is one of your priorities, you can add a death benefit rider to your variable annuity. Your heirs will get up to your entire investment value when you die, depending on the state in which you live.
Most of the people who are anti-annuity simply focus of them having high fees compared to other retirement products. First of all, not all annuities have high fees. Investing has other costs and risks that must be factored in as well. Studies have shown that it is crucial to have some of your money invested in stocks, especially when interest rates are low. But volatile markets can make it terrifying to have any significant portion of your retirement savings solely in stocks. You will have no guarantees that your money is safe. Variable annuities offer you equity exposure, but also offer you guarantees from insurance companies. Use your variable annuity for the purpose that you originally intend it, whether it be to guarantee you lifetime income or offer you market exposure without all the risk. Speak with an annuity expert before you make an uninformed decision about variable annuity products.
Written by Rachel Summit