Annuity up-front bonuses are not what they appear to be
Any time the stock market starts going south, the annuity sales pitches always become more aggressive. The too-good-to-be-true story currently being used is that specific indexed or variable annuities can provide an up-front bonus to “offset” those recent market losses. Sounds great in concept, or at a bad-chicken-dinner annuity seminar, but annuity bonuses should never be used to make up for a portfolio downturn.
There are no philanthropists at annuity companies
First of all, it’s important to point out that there are no annuity company CEOs sitting around whimsically pondering how to give money away to struggling investors. Remember, annuity companies have the big buildings and private jets for a reason. They don’t give anything away. Everything comes with a cost when it comes to annuities. Unfortunately, annuity sign-up bonuses are being used by agents as a fishing lure for scared investors, and a strategy to attract premium.
Just part of the overall contractual guarantee
Annuity bonuses are not bad in concept, they are just sold and promoted improperly. An up-front bonus is nothing more than a part of the entire contractually guaranteed annuity picture and is just one part of the overall “will do” calculation. No importance should be placed solely on the bonus, even though too many agents purposely frame it as “free money.” There is no free money!
Buying a car for the stereo system
A recent caller told me that his agent was pressuring him to buy a specific indexed annuity and take the 20-plus-percent up-front bonus because the bonus amount was going to be lowered soon. That could be the dumbest and most fraudulent sales pitch ever, and any agent leading with this urgency nonsense should lose their license in my opinion.
Making a decision to buy an annuity because of the up-front bonus is like buying a car because it has a great stereo system. Forget the engine, the tires, and the suspension. Listen to those great tunes coming through those speakers. That, in essence, is buying an annuity for the up-front bonus in real terms.
Monopoly money for dreamers
Most overly aggressive annuity promoters are looking for people who are dreamers and will tell them exactly what they want to hear to get that application signature. Up-front bonuses are the current shiny thing, and the ultimate sales candy when markets are going down. However, the contractual truth never seems to match the sales pitch.
Most up-front bonuses are only applied to the account calculation used for future income. In other words, it’s monopoly money and a phantom account that can only be used for income. That’s not a bad thing if your long-term plan is future income, but that’s not how it is typically sold. With up-front bonuses, you cannot peel off the interest, transfer it, or get to that dollar amount in a lump sum. In addition, most bonuses come with an annual fee for the life of the policy. There are only 100 pennies in a dollar, right?
You are smarter than that
My hope is that you are smart enough not to fall for the up-front-bonus annuity facade. Don’t let an annuity up-front bonus sales pitch influence you to make a bad emotional decision with your market investments. There is no “market upside with no downside” (i.e. indexed annuity pitch). There is no free money. There is no too good to be true annuity solution. There is no product that can immediately offset market losses. Call me the “annuity grim reaper”, but the truth is the truth.
Annuities are contracts, commodities, and should be owned for the best guarantees that contractually solve for your specific situation. That’s the only annuity solution “bonus” you should be looking for.
Originally published by MarketWatch 2.9.2016 – http://www.marketwatch.com/story/annuity-up-front-bonuses-are-not-what-they-appear-to-be-2016-02-09