Psychology and annuities have a much stronger connection than many people realize. In Stan Haithcock’s recent Marketwatch article, he tries to determine “Why we hate annuities.” Everyone doesn’t hate annuities, of course, seeing that more than $250 billion in annuities are sold annually. But those that do hate annuities seem to have confirmation bias against the products. Confirmation bias is when you like information that supports your beliefs in something. Oftentimes, you seek out information supporting your stance, even if your beliefs are incorrect. Most people with confirmation bias also ignore or change any information they come across that doesn’t support their beliefs. Stan looked at some of the major factors contributing to the confirmation bias of annuities.
Many people hate annuities because they think that the commissions are always high. No-load annuities not only offer great flexibility, but they also don’t charge commissions. There are many annuity types that charge relatively low commissions, including deferred income annuities, single premium immediate annuities and fixed rate annuities. There is a strong belief from some consumers that agents receive huge commissions from each annuity they sell. This belief comes from a small percentage of annuities that do carry high commissions and the anti-annuity groups that market against the products. Just about everyone who blasts annuity products happens to sell a competing product, so it’s important to look past those ads.
Something else that many people falsely believe is that all annuity products have high annual fees. Variable annuities and indexed annuities with living benefit riders have the highest annual fees. Sometimes these higher fees are worth the benefits received from the annuity product. If they are not right for your plan, there are plenty of annuity products out there that don’t have high annual fees. Most annuities, like those listed in the previous paragraph, actually have no annual fees at all. Confirmation bias makes people use the example of the fees associated with variable and indexed annuities as representative of the entire industry when that simply is not the case. Annuities also cannot be compared with market growth investments because they are not the same type of products at all.
It’s easier to ignore the facts and say that you hate all annuities than it is to do some research about the products. Stan says in his article that it’s just lazy. People are not aware that there are more than fifteen different kinds of annuity products. Each annuity type has it own benefits (and drawbacks) that allow them to be tailored to individual financial plans. Saying that you hate all annuities is no different than saying that you hate all stocks, bonds or mutual funds. Some are right for you, but some are not. Stan also says that any anti-annuity pitch that you hear has some kind of agenda behind it. The best thing you can do for yourself is to research the pros and cons of annuity products and find a reputable advisor if you need help. Annuity haters have been around for a long time and it’s really up to the annuity industry to spread truths about the products and help eliminate the confirmation bias against annuities. Stan The Annuity Man works hard to spread the truth about annuities. We do that here at Annuity FYI as well. Before letting your confirmation bias against annuities keep you away from a product that could help secure your finances in retirement, educate yourself on the benefits that annuities have to offer.
Written by Rachel Summit