Should you care that Bernanke owns annuities?

Every year or so when Ben Bernanke has to publicly reveal all of his investment holdings, it sets off a predictable argument on both sides of the ledger on whether annuities are good or bad.

Federal Reserve Chairman Ben Bernanke’s largest investment holdings are currently, and have been for a while, two different annuities. One is a fixed annuity and one is a variable annuity, according to annual government reports. The two annuities are held and managed by TIAA-CREF, and were established by Mr. Bernanke as part of a retirement plan while he was teaching economics at Princeton University.

As with everything in life, there’s always a little more you need to understand about the “Bernanke Annuity” story. First of all, it’s important to know who or what TIAA-CREF is. TIAA stands for Teachers Insurance and Annuity Association, and CREF represents College Retirement Equities Fund. TIAA-CREF was founded in 1918 by Andrew Carnegie and was one of the first organizations to start offering annuity strategies in the U.S. They were also the originator of the variable annuity, with the first version being introduced in 1952.

TIAA-CREF primarily provides retirement plans and solutions for people who work in the academic, medical, research fields, and nonprofits. The company has a fascinating story with a unique history that originally was part of Carnegie’s vision to provide retirement services to teachers.

Even though TIAA-CREF is now a full service financial services company, most of the people that I run into with TIAA-CREF accounts are teachers or work for colleges or universities. In addition, TIAA-CREF is one of the highest rated insurance carriers in the country with a current 100 out of 100 COMDEX ranking.

So now that you know who is holding Mr. Bernanke’s annuities, let’s look at the reality of his annuity ownership.

Ben haters

For the large group of people that can’t stand Ben Bernanke, then the fact that he owns the dreaded and often maligned deferred annuity product is just icing on the cake. The fact that he holds more than one is justification for his alleged failures, especially if you aren’t a fan of the “Ben buyback” Fed easing strategy.

How could the leader of the Fed make such a potentially horrible investment decision of owning both a fixed and a variable annuity? This is a “case closed” justification for most Ben haters.

The reality of Mr. Bernanke’s unknown attraction to annuities most likely revolves around the fact that he probably didn’t give it much thought when he was a professor at Princeton. Another reason might be that he makes a lot of money from royalties he receives from the two economic textbooks he wrote. According to the same government report that revealed his two annuity holdings, Bernanke earned over $1 million from royalties on his textbooks in recent years. That’s a nice bump from his reported 2013 Fed Chairman salary of $199,700, that is so generously set in stone by Congress.

Maybe this is where Congress should start cutting spending!

Ben lovers

The response from selected annuity people is predictable and almost Pavlovian in nature concerning the fact that Bernanke owns annuities. Any time that a famous person either says something somewhat positive, or has any non-negative connection to annuities, then the “I told you so” annuity cheerleaders come out in force.

It happened earlier this year when Warren Buffett signed a reinsurance deal where Cigna actually agreed to pay $2.2 billion in cash and assets to Buffett and Berkshire Hathaway to insure $4 billion of future claims for two of Cigna’s “run off” variable annuity business. The specific facts of that pure investment deal was a far cry from the “Buffett loves annuities” trumpeting that was told to the millions of on the fence annuity buyers.

The same type of knee-jerk reaction happens every time that we are reminded that Ben Bernanke, the most powerful money man in the world, owns annuities. The Fed Chairman, who has to be a really smart guy, has a fixed and a variable annuity so it must be OK. Right?

The answer to that is probably not. Most likely, he was just focused on being a professor and writing surprisingly profitable textbooks, and not on the investment choices inside of his TIAA-CREF account.

The good news for our current Fed chairman is that the two annuities he does own seem to have performed pretty well over time, which is additional fodder for the legion of annuity lovers who have eagerly welcomed Mr. Bernanke into the annuity family.

No endorsements needed

I’ve been waiting for some marketing driven annuity carrier to start promoting celebrities, sports stars, and pop culture icons who now love annuities. It will be kind of like the “got milk?” ad, but with the slogan “got guarantees?” Judging from how the public fawns over empty shell celebrity fame, it might just work!

The bottom line is that you don’t need names like Bernanke and Buffett thrown around to push you over the annuity finish line. Annuities can contractually solve for specific problems like lifetime income or legacy. They are not magic portfolio pills or one size fits all panaceas.

Ask yourself what you want your money to realistically solve for, then see if an annuity can contractually guarantee that solution. That common sense strategy requires no endorsements, or name dropping.

Originally published by 9.10.2013 –