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Seek Reliable Information When Shopping for Annuities


If you ask anyone who is nearing retirement if they’d like a steady stream of guaranteed income during their Golden Years, most would answer with an enthusiastic “YES!” But ask those same people if they’re interested in purchasing a prime source of such income, fixed annuities, and the response changes drastically. Why the discrepancy? Many industry experts blame bad information.

According to a recent Kiplinger article, 56% of Americans claim that guaranteed income is their #1 priority, and another 22% want to ensure their savings are safe, regardless of what happens in the stock market. With pension plans quickly becoming a thing of the past, the only financial product capable of meeting these needs is an annuity. However, just 13% of those who wanted such perks actually owned an annuity.  

Similar to a traditional pension, fixed annuities can turn your savings into a stream of income in retirement, providing a monthly check over a specified period of time. They can be structured to start immediately or at some point in the future. Annuities are regulated by state insurance commissioners, state-by-state, and anyone who sells them has to have a state insurance license.

While many people consider owning an annuity, many just won’t pull the trigger. The Kiplinger article cites three common reasons why retirees don’t purchase an annuity product:

  1. You’re talked out of it by your investment adviser. Investment advisors often make their living off of fees paid from “assets under management.” If you suggest a transfer of money away from an adviser’s account to a fixed annuity (not sold by the adviser), it’s obviously not in their best interest to recommend that.
  2. You’re talked out of it by articles on the Internet. Amazingly, most people are comfortable admitting that the Internet is NOT the most reliable source of fact-based information, yet so many believe the hype about annuities being “bad,” based on the many “I hate annuity” articles out there.
  3. You’re talked out of it by your kids. When your kids are trying to give you advice, of course it’s coming from a genuine place. And while they are just trying to protect you, their source of information (i.e. a stockbroker, Internet articles, or worse yet, their friends) might not be reliable either.

Many critics harp on the fact that annuities are “complex” and “difficult to understand,” but perhaps “sophisticated” is a better adjective to describe them. The real confusion often comes in when folks try to understand the hundreds of annuities available as though they were one. There are so many annuity possibilities in the marketplace that the job of identifying an optimal recommendation should be left to a licensed and skilled professional. This professional needs to take the time to understand your unique needs and circumstances before recommending a product. If the professional you consult with doesn’t do this, you should seek an alternative opinion.

Sometimes, identifying a skilled professional can be challenging. The key in identifying one is to ask questions. You should be looking for someone who is independent, fully licensed in both insurance and securities and who has some professional credentials beyond basic licensure. Look for any predetermined biases, like never recommending products from an entire financial industry. And finally, see if they work with other professionals, such as attorneys, CPAs, etc.

“There are a multitude of well-meaning but misinformed people in the world, including many who claim to be professionals and should know better.  The best way to protect yourself from bad advice is to find a truly independent adviser with the broadest possible access to the world of financial products, including access to multiple service industries.”

Written by Rachel Summit

Follow Rachel, aka Finance Mama, on Twitter and Google+

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