Fixed Index Annuity Pros and Cons

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Hi there, Stan the Annuity Man,

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America's annuity agent, licensed in all

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50 states in Puerto Rico. Today's topic,

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really good one, interesting,

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provocative. Be careful who you ask this

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question to. What are the pros and cons

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of fixed index annuities?

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There are good, there are bad, but there

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are some really bad sales pitches that

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you need to be aware of out there. We're

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going to talk about that after this.

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So, let's talk about index annuities.

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They were designed in 1995 uh to compete

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with CD returns, not the market. They're

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not market products. They're not

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regulated by the SEC or FINRA. They're

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not securities. They're a fixed annuity.

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And in order to sell an index annuity,

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you have to pass make a 70 on a state

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life insurance license exam to to to

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sell it. That doesn't mean it's good or

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bad. It's just there's a low bar for

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entry. So you got a lot of guys out

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there and gals that really don't have

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the acumen to be talking about markets

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and things like that. All of a sudden

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they have an index annuity. They think

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it's a market product. It is not. It is

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a CD product. Um you know the good let's

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talk about the pros of the index

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annuity. When it was put on the planet

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it's just another CD product. Uh in the

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fixed annuity world there's two types.

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Multi-year guarantee annuities are

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actually a CD product. Um they have a

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guaranteed interest rate for a specific

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period of time that you can choose. you

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can see live feed on my site. Indexed

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annuities, the the pros of that is

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you're not going to lose money, okay?

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You're just not. It's it's a fixed

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annuity. So, um that's where kind of the

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the the cons of the and the bad stuff

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start sneaking into the index annuity

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story because because of that principal

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protection side, the growth story gets a

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little out of whack and overpromoted.

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Okay. Um and that's the bad stuff. I'm

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not going to say the word con because I

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don't I think it's a um it it leads to

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the word con con artist which I don't

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want that to be the case with the

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annuity people that are selling the

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index annuities. I'm just going to give

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them a little grace and and say that

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they really don't know what they're

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talking about. Um they really haven't

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done the research on the product. I mean

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I've written a book on index annuities.

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You can go to my site at

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theanuityman.com and download it for

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free. I always joke that I think there's

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five people on the planet that really

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understand index annuities and I'm

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pretty sure I know the other four. I'm

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one of them. Okay. I'm not a huge fan of

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the accumulation story. Uh one of the

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one of the positives about an index

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annuity is that for lifetime income you

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can attach what's called an income

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writer. And typically that income writer

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is a higher guarantee than income

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writers that can be attached to variable

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annuities or registered index linked

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annuities. So index annuities as a

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delivery system for the income writer

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for lifetime income is fantastic. That's

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how we use them. Okay? I do not use

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index annuities as a standalone for

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accumulation because migas beat them.

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And also too there's nothing guaranteed

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about the return. It's hypotheticals and

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theoreticals and back tested and and in

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reality if if we had a sideways market

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or sideways down market, you could go 10

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straight years without a without making

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any money in an index annuity from the

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accumulation standpoint. Now, when we

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attach an income writer to it, who

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cares? We're we're focusing on the

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income writer. I only ask two questions

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when I, you know, we're talking if you

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need an annuity, what do you want the

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money to contractually do? And when do

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you want those contractual guarantees to

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start? If you say, "I want market

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growth," don't buy an annuity, including

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index annuities. If you say, "I want

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reasonable rate of return," then maybe a

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MGA is better for you because it's

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guaranteed. It's contractual.

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Again, the only thing that's contractual

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on the index annuity is the principal

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protection part, unless you add an

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income writer to it. And then there's an

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income guarantee that is completely

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separate from an index annuity. Let me

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explain that visually. If you draw a

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line down a blank sheet of paper and you

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decided that you answered the questions,

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I want lifetime income. I want it to

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start in the future. Well, then that's

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an income writer. Um, that's also

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deferred income annuity, but an income

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writer is what we're also going to

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quote. Index annuity on this side, I

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don't care about that CD product. Income

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writer on this side. So, we're only

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focus on the guarantee A+ or better on

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the income writer. So, that's that's a

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pro. I mean, I that's the pros of uh and

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the positive of index annuities. It's a

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efficient and coste effective delivery

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system for that income writer guarantee.

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Let's go through some of the bad stuff

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and and some of the stuff that I wish

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the annuity industry had the ability to

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clean up. And when I say that, you know,

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they put out the product and and they're

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very transparent about it being a CD

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product. And some of them go a little

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bit too far on the hopes and the dreams

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and the hypothetical. But the problem is

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the agents take that principal

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protection and then they weave in the

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story, you know, market upside with no

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downside or principal protection uh with

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market participation.

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That's financial malpractice. Okay? And

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any one of you out there that purchased

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an index annuity with the hopes and

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dreams of getting market returns, you

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know that you have not. And maybe

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there's one out of a hundred of you that

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got that got those dream returns. The

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other thing about index annuities that I

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have a little bit of a problem with is

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that the vast majority of them, the

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annuity company can change the rules on

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how the gains are calculated. There's

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three levers that they use, they're

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called cap, spreads, participation

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rates. I've done a video on that. I've

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done I've written a book on that. You

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can read that. But the bottom line is

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they get to change the rules. And I

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don't like those rules being changed. I

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like rules that are rules that stay in

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place. So that's not good. I also don't

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like um when when agents and advisors

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say, "Well, if you'd owned it 10 years

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ago or here are the backtested numbers

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or here's the projected numbers."

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Absolute garbage. You should never buy

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an annuity for non-G guaranteed

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assumptive numbers because they never

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come true. You should buy annuities for

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the contractual guarantees. And if you

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want market growth, don't ever buy an

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annuity of any type. There's three types

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that promise the potential. Index

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annuities, registered index, linked

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annuities, and variable annuities. I say

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don't buy any of them. Coming from

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Morgan Stanley, UBS, Payne Weber, and

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Dean Witter, I've seen real market

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growth. Go get real market growth. The

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annuities are there for the contractual

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guarantees. They're commodity products.

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You shop all carries for the highest

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contractual guarantee. But the biggest

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negative around the index annuities that

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is is how they're being sold.

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Unfortunately, they are the highest, if

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not if one of the highest, if not the

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highest built-in commission product in

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the annuity world. That's the reason

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pretty much everyone except us pushed

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that. You know, you could go in and say,

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"Hey, I've got a sore throat and a and a

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and my ankle hurts." They be like,

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"Well, you need an index annuity." It's

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not a one-sizefits-all. The other thing

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that bothers me about index annuities is

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a agents will talk about upfront

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bonuses. Um, there's no there's not

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there's 100 pennies in the dollar.

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There's not a hundred plus the bonus

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pennies. Um, so it's just part of the

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overall contractual guarantee, but it's

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used improperly to make people think

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that they're getting more than they're

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actually getting. uh when we quote

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income writers attached to index

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annuities, those includes bonus, ones

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with bonuses, ones without bonuses.

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Doesn't matter to us at all. We're just

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looking for the highest contractual

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guarantee. The other thing that in the

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sales pitch that's wrong is is um agents

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will say you get free long-term care

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with it. Long-term care is a health

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insurance product, so just that on face

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is financial malpractice. And they're

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using word games to make you feel good.

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Um if you want long-term care, go get

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it. You know, I can refer you to the

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best guy in the country that does that,

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but what they're talking about is

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confinement care, which isn't long-term

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care. Once again,

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a lot of the bad with the index annuity

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revolves around the sales pitches that I

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continually hear from all of the people

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that call me and say, "Hey, Stan, is

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this true? Hey, Stan, I went to this

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seminar and this guy said this. Hey,

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Stan, I saw this thing on the internet

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and this guy said 11 to 15% returns on

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index annuities." Come on, man. You got

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to be smarter than that. No, these are

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contractual guarantees. There's they're

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CD products, but Migas typically beat

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them. Historically beat them, but I have

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nothing against them. I just don't like

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how the industry I'm not I'm again I say

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allow them to be sold. I mean, they

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can't you can't the cats. And there's

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hundreds and hundreds of thousands of

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agents that have their own version of a

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sales pitch on an index annuity. And

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most of them I hear coming back are

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incorrect.

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I mean, so that's it. The pros and cons

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of index annuities. They're fixed

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annuity. This is the pros. They're fixed

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annuity. They get you CD type returns,

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but unfortunately those returns are not

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guaranteed like a MIGA. And they're

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efficient delivery system for income

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writers. When you answer the two

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questions, you want income and you want

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it to start at a future date. Fantastic.

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Okay, that's that's great. the the

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negatives around index annuities revolve

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around the sales pitch, the

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one-sizefits-all nature of that sales

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pitch and the fact that most people that

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are selling them are just really

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unqualified to do so in my opinion. Um,

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having come from the securities industry

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where you had to pass all these tests to

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to even be able to speak about anything.

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You come out here, you make a 70 and you

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get to talk about index annuities and

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markets. No, it it shouldn't work like

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that. So, all I would tell you is to be

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careful out there. Go to my site,

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download the book on indexed annuities,

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download the book on income writers. Um,

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get educated, schedule a call with me,

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shoot me an email standanuityman.com.

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Just don't just don't fall for the dream

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because you're going to own the

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contractual realities. Always run it

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past me. I'll give you the facts. You

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can make your own decision from those

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facts. Um, but it's it's dangerous. The

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index annuity side is dangerous if

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you're going to believe what's being

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pitched out there. One last thing above

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my head, I did a pretty cool video on

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how annuities can help your family. And

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when I talk about that, help your family

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contractually. I would encourage you to

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take a look at that. I give specific

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examples on how I'd use that for my

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family and maybe that can correlate to

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yours. All right, stay safe out there.

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Keep your thinking caps on. If it sounds

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too good to be true, it is without

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exception. My name is Stan the Annuity

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Man. See you next time.