Posted by Ray on June 18, 2008 under Main | 
While we are somewhat critical of immediate annuities and, more to the point, their restrictions we do see value for the product. When these products are used in conjunction with an asset allocated portfolio they can and do significantly reduce risk.
Immediate annuities have a reputation about them as being very inflexible and lack the ability to keep up with inflation. While that is true of older products newer products offer some flexibility. Many immediate annuities have inflation protection riders now, where the payments can increase by 3 or 5% a year, and many newer products have cash refunds to the beneficiaries so the insurance carrier will not keep all of the money when the owner passes away. These new features have increased interest in the old immediate annuity and sales have been very strong over the previous 12 months.
As the Baby Boomer generation retires we expect to see an increase in annual sales for the next few years. The problem with most of the products sold is that investors do not shop around for the most competitive immediate annuity rate. There are several websites dedicated to find the best rate for you, like Immediate Annuity Solutions, but few investors are using these valuable sites. Instead they settle for whatever their financial advisor or insurance agent recommends.
Because of this we highly recommend that you shop for an immediate annuity before just settling. After all these are a lifetime commitment so use the resources that we have available. We like ImmediateAnnuitySolutions.com, but will add more sites as we find them.
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Posted by Ray on June 12, 2008 under Main |
These guys are relentless with their misinformation, especially on annuities. It is a miracle that they are still in business, especially with all of the bad advice they give. In their recent article titled “Are Annuities Ever Not Stupid?” they really show their stupidity.
First, they say: “An annuity is a contract between you and (usually) an insurance company”, emphasis added. The last time we checked all annuities were issued by an insurance company. We know we are going out on a limb here, but since all we do is annuity work, we are pretty sure that statement is just plain wrong. The thing is they mention Fidelity and Vanguard as Annuity options at the end of the article, are they suggesting that their annuities are not issued by insurance companies? They are by the way.
Second, they recommend all equity stocks as a reasonable alternative to an annuity. Talk about comparing apples-to-oranges stocks and annuities should NEVER be compared as a similar investment. variable annuities do offer equity investments, but they are mutual funds, generally speaking, and diversified while stocks are not unless you buy many different stocks.
Third, they say equity indexed annuities are ugly, well we kind of agree with them, but the facts are still a bit dubious in their statement as they lay into fees on indexed annuities. Generally, there are no fees, perhaps an asset charge or a spread, but most offer straight participation rates.
Fourth, variable annuities are bad! There is a shocking statement for you. Here is what I find interesting, before they said that they had this blurb: “You’d think investors would avoid these products. Yet no less an eminence than retirement whiz John Greaney, a regular Fool contributor and former engineer who successfully retired at age 38, has said repeatedly that under some circumstances, one type of annuity can be a useful component of your overall retirement strategy. Writing in the March 2005 issue of the Fool’s Rule Your Retirement newsletter, Greaney showed how adding a lifetime income Annuity to your retirement portfolio can help ensure that you don’t outlive your retirement savings.”
Now, first off the day we listen to an engineer about retirement is the day we should all start letting our pets drive us to work, come on that is just plain stupid. If we were building a bridge then I may consult with John, but not when we are investing our money. Second, right in this statement they illustrate a variable annuity. An equity investment with a lifetime income component, what do you think living benefits are with equity sub-accounts? Thats right an equity portfolio with a lifetime income component.
Finally, lifetime income annuities sometimes make sense, i.e. immediate annuities. While immediate annuities do make sense for many investors, they do have significant drawbacks which the author so blatantly glossed over. He then recommends Fidelity and Vanguard, not that they are bad annuities, but what is the deal, did T. Rowe Price not buy enough advertising to get mentioned by the Fool? For a website that says to always shop around they certainly do make the same annuity recommendations rather frequently, therefore their recommendations have to be dismissed as they are hypocritical.
If you are going to bash a product at least know something about them, do not use sound bites from a decade ago. Worst of all they described a variable annuity in one portion, a more risky version individual equities and and immediate annuity, and then said they stink in the next. If you do not understand what or how a product works then do not talk about it. Otherwise you simply sound, well, foolish.
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