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Fixed and fixed-indexed annuities do not always get the credit they deserve. As baby boomers come to realize the importance of safety, liquidity, and the ability to avoid the high cost of mutual funds and variable annuities, fixed and fixed-indexed annuities will continue to grow in popularity. Since fixed annuities and fixed- indexed annuities have become increasingly popular, they have also come under attack, as sellers of market sensitive investment vehicles are losing customers. Those who attempt to discredit fixed and fixed-indexed annuities often have genuinely not done their homework, or they simply lack the financial perspective of seniors and other moderate investors and savers, and write one sided articles that are full of inaccuracies.
In an effort to separate the fact from the fiction, American Annuity Advocates will provide you with objective third party information, plus some of our own thoughts or rebuttals to this "misinformation or untruths" in the market place. Please take the time to read about misinformation in the market place, and you will come away with a balanced perspective on your retirement savings and investment options.
The television newsmagazine Dateline NBC ran a story about the sale of annuities to seniors on Sunday, April 13. The show is an undercover investigation and its title, “Tricks of the Trade,” certainly gives everyone an indication that it will be focusing on negative and unsavory sales tactics. The American Council of Life Insurers (ACLI) and other organizations have prepared responses, but it’s unlikely those viewpoints will receive airtime. Unfortunately, sometimes a few bad apples can give others a bad name.
I highly encourage you as consumers preparing for retirement to educate yourself on your various savings and investment options, by learning more, on this website and from other sources that you feel provide sound information. Do not count on others to make your decisions for you, because unless you understand the workings of the various products found along the spectrum of risk and return, you will not be in a position to make an informed decision. Although this sounds simple, and logical, there is a constant flow of misinformation in the marketplaces. We hope this site and this section serve you well, feel free to email your comments or questions.
The most prominent points of contention usually center around the following issues, but as you can easily tell, those who make such points are uninformed, and usually oriented towards market sensitive investments, which may be appropriate for some, and or a portion of ones nest egg, but for the average boomer or retire, perhaps moderation is more in order.
Below are the points of contention with annuities:
Maturity Date
- Uninformed opponents of annuities competing for the savings and investment dollars of seniors and boomers, try to convince consumers that the inclusion of a maturity date in a contract means they cannot access funds until the policy matures. That simply is not true.
“The maturity date is not how long you must keep the annuity, but how long the insurer will let you keep the annuity interest deferred before annuitization.” (And most carriers will allow extensions!)
Surrender Charges
Almost all annuity contracts will include waivers of surrender charges for critical situations like confinement to a nursing home or diagnosis of a terminal illness, which cannot be said of other financial products that are sold, such as bonds, and mutual funds. Now you know.
Additionally, surrender charges are actually a good thing for at least three reasons:
- They allow 100% of a consumer’s deposit to go to work earning interest immediately. A product with a front-end sales charge (which fixed, fixed-indexed, and income annuities do not utilize) reduces the amount of the deposit up front to cover the sales commission, and therefore, less money is working for the consumer from day one.
- They encourage the consumer’s money to stay with the company longer, which allows a carrier to invest longer (at higher rates) and provide higher returns.
- They discourage the consumer from tapping an account early for non-critical needs, so the money is actually there when they need it the most.
Always remember that fixed annuities, and fixed-indexed annuities, (not to be confused with market sensitive variable annuities) completely protect your principal, interest, lock-in your credited interest gains, and afford the consumer tax-efficient, tax-deferral.
In terms of liquidity, annuities provide access to your money by providing you with a 10% withdrawal feature annually, interest withdrawals only, annuitization ( an equal amount of principal and interest which will come to you monthly if you like for the rest of your life, or for a set period of time), and it bares repeating that almost all annuity contracts will include waivers of surrender charges for critical situations like confinement to a nursing home or diagnosis of a terminal illness, which cannot be said of other financial products that are sold, such as bonds, and mutual funds.
In regard to the Dateline NBC broadcast, it is truly unfortunate that a few brokers, choose not only to offer inappropriate products, but to gloss over suitability standards, that can affect the decisions made by consumers, who were depending upon those advisors for good advice.
In the end, annuities, as you may be learning, are in fact very appropriate for a large percentage of people, in both the US and abroad. The preceding points are made clear, and are highlighted in the study
“Investing your Lump Sum at Retirement”, written by David F. Babbel, Fellow, Wharton Financial Institutions Center, Professor of Insurance and Finance, The Wharton School, University of Pennsylvania, and Craig B. Merrill, Fellow, Wharton Financial Institutions Center Professor of Finance and Insurance, The Marriott School of Management, Brigham Young University. The commentary in black is provided by Steven S. Delaney, President of American Annuity Advocates. Click here to read this article, or continue on in this section Myths and Realities, to read article #1 and/or article #2.
The National Association for Fixed annuities provides accurate information to dispel misinformation in the market place.
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