We are joking...all ads says Ken Fisher hates annuities or he says some “fixed” types are okay. But...
There is a time and place for annuities.
Annuities were originally created as a retirement account for people who did not have a pension through their employer. Long before IRAs and 401(k) plans, annuities were the only retirement account for these people. Investment in an annuity offered tax-deferred growth. The account owner could convert the annuity to a lifetime stream of income when they reached retirement age. Annuities were pensions for people who didn’t have a pension.
Ken accurately points out that investors can do better on their own than the guarantees offered by most annuities. This is where we disagree. Ken states in his article that “Anyone can.” While investors can do better many don’t. They don’t because they become fearful in stock market downturns and sell out of their positions during the declines. DALBAR has documented this behavior penalty year after year by tracking the flow of money in and out of stock funds. The guarantee offered by an annuity may provide enough peace-of-mind for an investor to avoid the behavior penalty. The internal expenses of the annuity are paying for this guarantee and could be well worth it to these investors. The expenses need to be fully disclosed to the buyer. More importantly the buyer needs to understand how the guarantees are triggered. Some guarantees are just benefits. The living benefits can be complicated and the buyer needs to understand this may not mean they can just surrender their contract and get their money back plus a 6% return. However, used in the right situation, an annuity can be a good fit for a nervous investor.
Not all annuities are bad. There is a place for them with some investors. You should talk to an independent financial adviser who is a fiduciary and independent about whether an annuity is right for you before buying.
Mintco Financial Team of Independent Advisors have been helping thousands of individuals reach their financial goals. Mintco Financial is a financial boutique with locations in Buffalo,NY and Tampa, FL.
We treat each client as a person, not a number . We take our calls. We serve you and many generations of your family. Call us at 716 565 1300 or 813 964 7100.
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