If you haven’t received an email selling you an annuity, get ready because the annuity onslaught is on. Yesterday I received one promising 4%. The fine print explains the egregious sales charges, penalties for early withdrawal (in case you need YOUR money), and a minimum holding period of five years. And your payment is contingent on the insurer being able to pay you.
Let’s rewind here for a moment to the debacle that was 2008. If you recall, the insurance sector was on life support with big name insurers trading at less than $5 a share. And that’s not including the need for some to be bailed out.
Unlike a diversified portfolio, an annuity is a product much like a gallon of milk. A sub-account is not a diversified grocery basket.
Your bet is the milk doesn’t go bad before you drink it.
It’s easy to think that you’re smarter than the insurer. That you’ll get your money.
That’s not investing. That’s being needy. Don’t be needy when it comes to your hard earned money.
And while I’m at it, let’s not forget that distant cousin of the annuity—another perishable hanging out next to the milk—five-year CDs.
Reasons to Avoid Annuities:
- They’re a legal Ponzi scheme
- They pay you back with your own money.
- Inflation adjustments cost more in fees.
- Laddered bonds are better, and you get your principal at maturity.
- Dividend paying stocks are better because of compounding.
- Your money dies when you do.
- You pay more in fees to have beneficiaries.
- You need a doctorate to understand the contract.
- Salesmen don’t even understand the contract.
- Surrender penalties can last for years.
- The salesman is paid upfront.
- The salesman is not required to act as your fiduciary.
- Aggressive sales tactics.
- IRAs are already tax deferred.
- Promises are not guaranteed.
- What if your insurer goes bankrupt? Is the state going to bail you out? Don’t most states already have pension problems? Down the road who do you think will be paid by the state, you or retired municipal workers? Don’t forget what happened to GM investors who were left hanging.