The 15 Biggest Mistakes When Buying Annuities - Part 2
All right, so this is part two. Part one was one through five and this is part two.
Let’s get into it with number six. The sixth biggest mistake I see people make when buying annuities is being pressured into signing the paperwork. You'll have some agents say, "Well, you got to sign it because if you don't sign it now, you won't get the upfront bonus." Or "You got to sign it now because this product is going away." There's never, ever, ever, an urgency to buy an annuity. The only urgency is for you to understand what you are buying fully. And if that takes you getting a specimen policy and reading it from front to cover, then great. But if someone's saying, "Hey, you need to buy it because of the bonus…” an upfront bonus is candy for the stupid.
No annuity CEOs are waking up in the morning, saying, "You know what? I'm going to give money away today." No, upfront bonuses are just part of the overall contractual guarantee. We put zero weight on upfront bonuses here on my site when you run the calculators, and you can run all the DSB, QLAC, and income rider calculators. When we run those calculators, and especially for income riders, that's where the bonuses typically are. We don't look at the bonus; the bonus is part of the overall contractual guarantee. Suppose someone says that this cap or spread or participation rate or this variable annuity, blah, blah, you need to buy it. Now that means the agent or advisor needs to make a car payment. There is absolutely no urgency at all to buy a contractual guarantee.
Think of it like this. You're buying your house. Does anyone say, "Yeah, you need to do it right now?" No, you're going to read that contract. You're going to go to the house. You're going to look at the house. You're not going to rush into that in most cases. You’re not going to rush into that. You’re not going to rush into that. We're talking about annuities, contractually guaranteed transfer of risk products. If there's ever urgency or pressure from the agent or advisor, there should never be urgency or pressure.
The seventh biggest mistake I see, and I just talked about it on number six a little bit, was this upfront bonus stuff. And typically, upfront bonuses are attached to index annuities. In a lot of cases, Fixed Index Annuities. Which were designed in 1995 to create CD-type returns. That's pretty much what they've done historically. But a lot of the agents will talk about this upfront bonus. Let's just remember this; there are a hundred pennies in the dollar. So if a company is offering an upfront bonus, okay, they're taking away something within that contract. And most of the time, with upfront bonuses, that's not real money. This means that if someone's giving away a 25% upfront bonus, I know you're saying, "Wait a minute Stan, 25%, that's a lot". Stop, okay; put on your thinking cap a little bit. If someone's offering that bonus, they're taking something away within the policy, whether that's the payout level, the internal guarantees, or whatever. And typically, that upfront bonus is vested over time. And in many cases, it's only attached to the income rider calculation, which is monopoly money, unless you use it for a lifetime income.
Now, upfront, upfront bonuses are fine. I mean, they are. We quote those lifetime income guarantees. And when you use our lifetime income rider calculator, it factors in the bonuses you don't even have to ask for; it’s going to factor in the highest contractual guarantee. And spoiler alerts a lot of the time, the highest contractual guarantee is that that product won't even have a bonus for your situation. And it will beat out products that do have bonuses. Remember this, if someone comes to you and says, "You need to buy this product for a bonus." They come to you at a car lot and say, "You need to buy this car for the stereo system." You would never buy a car with a stereo system. You'd buy the car for the engine, transmission, and drivability. You're not going to buy it for the stereo system. But then, in essence, when people push bonuses like that, that's what they're saying, "Buy this car for this stereo system."
Bonuses are fine. We have no problem with bonuses as part of the overall contractual guarantee. And when you use our calculators, bonuses are factor factored in. We quote them all with and without bonuses. And what we find a lot of times are the ones without bonuses have the highest contractual guarantee. I wish that the annuity industry would reign this in a little bit. I wish there weren't upfront bonuses because it's reasons for agents to push the envelope on truth. And I wish they wouldn't do that. But now that you know the truth about upfront bonuses, you're not going to make that mistake.
The eighth biggest mistake I see people make when buying annuities or considering annuities is not shopping all carriers. The annuity industry doesn't like me to say this, but I will say it anyway because it's the truth. Annuities, regardless of the type of annuity, they're commodity products. It's like buying a plane ticket. You're buying the best deal for you. In this case, the highest contractual guarantee. So if someone shows you just one idea and says, "Well, I've looked at them all, and this is the best one for you." No, no, no. If that's the case, I'm probably going to bet that if they sell enough of it, they're going to go on a trip to Spain with their wife, husband, boyfriend, or girlfriend, which one ever they choose, whatever applies. In other words, they are incentivized to push that one product down your throat.
I don't care what you're looking for. And remember, when I talk to people, I ask two questions. What do you want the money to do contractually? When do you want those contractual guarantees to start? And then I'll either tell you if you don't need an annuity or what type will provide the highest contractual guarantee. But once we get to that product type, I will quote all carriers. And quotes are like a gallon of milk; they expire every seven to 10 days, so we must continually re-quote them. There's not one product that's better than the other.
Number nine, the ninth biggest mistake I see people making is believing that it's too good to be true. Believing that what they've been told is just, "I mean, why wouldn't I buy that? That's so great." Let me give an example. Mr. Jones, I will give you a 20% upfront bonus on whatever money you give me. Number two, you will get full market participation and principal protection. So you're not ever going to lose a penny. Number three, you’ll get a lifetime income stream that you can never outlive. And number four, you’ll get free long-term care that you don't even have to get any test; it’s just a guaranteed issue.
So upfront bonus, market upside with no downside, lifetime income, and long-term care all in one product period, no commissions paid. You'll never see commissions. Sounds too good to be true, right? Yes, because it is. All right, if it sounds too good to be true, it is without exception every time. An annuity should never be purchased as a one-size-fits-all. Let me break down that typical index annuity pitch that you heard. Index annuities are not market products. But let's go through that sales pitch. Upfront bonus, we just talked about that; it’s candy for the stupid. Nobody's giving away any free money. Okay? Number two, market upside with no downside. Index annuities don't do that. And by the way, variable annuities don't do that either because you have limited choices. Anytime your limited period, whether it's upside or the choices, that's not a market return product. Number three is lifetime income. That is true with some indexed annuities.
If you're shopping for lifetime income, if that's the goal, remember, what do you want the money to do contractually? When do you want those contractual guarantees to start? If you say, "Stan, I want income later®." Then we're going to shop for all income riders. We’ll forget bonuses; we’re just going to shop income riders, and shop them all for the highest contractual guarantee. So the income rider benefit is a commodity product. We're going to shop all carriers for the highest number for you.
And then number four, free long-term care. That is fraudulent because long-term care is a health insurance product. Annuities are life insurance products. There is such thing as long-term care annuities, and if you want long-term care, I'm going to refer you to a good friend of mine, Jack Lindenberg, who's the top long-term care agent in the country based outside of Atlanta, and I've done a lot of podcasts with him. So the bottom line is this. If it sounds too good to be true with annuities, it is every time, without exception.
All right, the 10th biggest mistake I see people make with annuities and buying annuities, considering annuities, is using too much money to put into annuities. Oh my gosh, I said that; the annuity gods are looking down upon me, going, "Stan, never say that again because we want all the money into annuities." No, we don't have annuity gods, No, we don't have the annuity industry, and No, we don't have annuity agents. We do not want all the money in annuities, period. I had a call the other day, and a person had put... Somehow this agent had put a hundred percent of this person's money into annuities. That's not right.
The industry suggests 50% of your investible assets in annuities. Can we do more than that? Yes, if you tell me why, I have to go to the carrier and use a bullet and explain to them why you are putting a little bit more money than normal in the annuity world. You should never have all your annuities, all your money in annuities, period. And anyone suggests that they're either not listening, don’t know the rules, or don't care, from an agent or advisory standpoint.
So the 10th biggest mistake I see all the time is, yeah, people using too much money to put into annuities. That's the reason that we look forward to talking with you one on one. I'm not going to allow that to happen. And if you make a good case for you to add a little bit more than normal, and it makes sense to me, then I'll use that bullet. I'll go to the carrier and let them know this is the reason. But just be aware that these are not too good to be true products; they are contractually guaranteed. And with that, I want you to join me next time for the remaining... We've done one through five, and now five through 10 of the 15 biggest mistakes people make use of in annuities. The next time you see me, we'll do the final five. Hey, do me a favor, and hit the subscribe button. I'll see you on the next Stan The Annuity Man® YouTube video.
Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.