We’ve clued you in prior posts about the dangers of annuities. The approach you hear everyday—especially if you’re at or near retirement is: “you don’t want to outlive your money”. And–building on that fear–annuity salespeople come to your rescue. They smile constantly because they know you’d be a fool to buy from them. Annuities are insurance contracts that guarantee a specified income amount for life. The devils in the details are: (1) the agent subtracts his/her 20% commission from any amount you deposit so you lose 20% of your principal immediately; (2) annuities carry severe penalties in case you want to surrender/redeem your policy.(if your life financial situation changes); (3) you have NO way to evaluate whether the amount you’re being “guaranteed” is fair according to your life expectancy; (4) it is very possible that your remaining principal is forfeited to the insurance company when you die—leaving your heirs with nothing. Let’s look at a recently quoted annuity income offer…. A 70 year old male gives the Insurance Company a lump sum of $250,000; and the insurance company quotes a $17,318/year income benefit. At age 70 a male is expected to live approximately 7 more years. So after 7 years, our “annuitant” has recovered $121,212 of his original $250,000. If he dies at that point, he has forfeited nearly $129,000!!! To break even our 70 year old male would need to live to at least 85. Now compare that against another option…suppose the male had invested in almost any Utility Company stock. His return would have been 4%/year. So, during the 7 years he has left to live, he receives $10,000/year. And when he dies 7 years later, his estate will still have the original $250,000. So for the sake of $7,318/year the individual loses nearly $129,000. Does this sound like a good deal to you?? Let’s be clear…We’re not Financial Advisers…we’re not telling you what to invest in; we’re telling you what to avoid. The salesperson knows the old adage “when you can’t sell the steak–you sell the sizzle!!”. Either way—walk away!!!! Our experience says that the vast majority of “advisers” are better at planning their own retirement than they are at helping you in a financially secure future. Our advice: talk to someone you know on a personal level; ask for guidance and do your own homework.
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