Which annuity type do you hate?
One of the most “politically correct” statements about money and investing is the oft-used “I hate annuities.” Well, I know money managers, syndicated radio gurus, and too many uneducated financial journalists all raise their fists in uneducated solidarity against everything that is annuity. Listening to these “hate generalities” is akin to believing the political-speak clichés coming out of the mouths of our flawed politicians.
You are smarter than that, right? If you are still drinking the annuity hate Kool-Aid, then let me factually destroy your uninformed bias against this controversial category.
Why the annuity hate speech?
The lack of knowledge that most educated people have about the annuity category is disturbing. I actually blame the annuity industry for this factual void because there is no coordinated response to the ongoing lies that are spewed about the financial curse word called “annuities.”
When most people hear the word “annuity”, they think of an income annuity that the annuity carrier keeps the money when you die. That’s called a “Life Only” structure, but one of more than 15 different ways that you can choose to contractually set up the guaranteed lifetime payments. The brutal and factual truth is that you can receive a lifetime stream regardless of how long you live, but guarantee that 100% of any unused money will go in full to the listed beneficiaries on the policy. That’s right, the evil annuity company doesn’t keep a penny.
Most of the know-it-all “hate annuity” pundits obviously have their own agendas, if you didn’t already know. Typical knee-jerk annuity haters advise that you should stay in the market and not transfer risk to a contractually guaranteed annuity strategy. There is certainly an argument for that “non-annuity” approach for most people, and annuities are definitely not for everyone. But risk is not for everyone, as well, and for these people, annuities do have a place. That’s an indisputable fact.
Advisers who manage money and get paid an annual percentage fee on assets predictably hate annuities because they can’t charge a fee on that money in a SPIA, DIA, or QLAC. Can you say “agenda”?
Different annuity types = different contractual solutions
I hate all restaurants. I hate all trucks. I hate all REITS. I hate all chiropractors. I hate all movies. I hate all annuities? There’s nothing rational about any of these uninformed biased proclamations that frame an entire category.
There are many types of annuities available, and all have their own unique benefit propositions and limitations. Yes, I said limitations.
All annuity types are contracts between you and the issuing carrier. Single Premium Immediate Annuities (SPIAs), Deferred Income Annuities (DIAs), Qualified Longevity Annuity Contracts (QLACs), and Income Riders all contractually solve for transfer of risk lifetime income. Multi-Year Guaranteed Annuities (MYGAs) and Fixed Index Annuities (FIAs) are CD return products that protect your principal while retaining full control of your money.
Charitable Gift Annuities (CGAs) provide a lifetime income stream while giving you a significant tax benefit and a philanthropic donation to your chosen charity, university, or non-profit. Please justify the annuity hate for this strategy. There’s not a rational person on the planet that can hate CGAs.
So honestly ask yourself the following questions. Do you hate principal protection? Do you hate lifetime-income guarantees? Do you hate your Social Security payments? Do you really hate annuities, or are you just blindly listening to the politically correct financial hate speech?
What you should really hate about annuities
I’m the first person to yell from the mountaintop that annuities are not for everyone. You own annuities for what they will do, not what they might do. You own them for their contractual guarantees. It’s really that simple.
With that being said, I think what most people hate about annuities … and the reason the “I hate annuities” mantra is somehow accepted by the masses … is primarily due to the way annuities are sold.
The seemingly unregulated “too good to be true” sales pitches that proliferate the indexed- and variable-annuity world is a self-inflicted industry wound. The bad-chicken-dinner seminars, the fraudulently misleading TV and radio ads, and the overly persistent annuity agent is what we all really hate about annuities. It’s not the specific product types that we hate, it’s the nauseating sales pitches and overhyped proposals that litter kitchen tables across America.
That’s one thing we all can hate about annuities, and it’s justified.
As for all the different contractually guaranteed annuity product types, you now know better than to agree with this agenda driven “I hate annuities” nonsense. You are smarter than that.
Originally published 08.02.2016 by MarketWatch.com – http://www.marketwatch.com/story/which-annuity-type-do-you-hate-2016-08-02