Stan The Annuity Man says, “Don’t believe the hype when it comes to annuities.”

By Stan The Annuity Man

In the financial world, there’s only one agreed upon curse word:  annuities.  Most people are under the assumption that all annuities are bad and too expensive.  They hear TV ads that say, “I hate annuities” and somehow nod their head in agreement.

I will be the first to say that the annuity industry has earned its bad reputation with a fractured and vague sales message to the consumer.  Too many agents use a “one size fits all” approach to their bad chicken dinner seminar sales pitches, and the ads on TV and radio sound “too good to be true.”  News flash…they are.

To say you “hate all annuities” is like saying you hate all restaurants or you hate all shoes.  There are many different types of annuities, and all of them have unique benefits & limitations that set them apart from the others.  Some solve for lifetime income.  Some solve for principal protection.  Others can provide a contractual death benefit or long-term care or confinement care coverage.  There’s not one type that does it all, even though too many agents will tell you that have that product.

If you hate annuities, then you hate your Social Security payments.  If you hate annuities, then you hate your pension payments.  If you hate annuities, then you hate CDs or any other principal protected product.  Case closed on the annuity “hate speech.”

To say that “all annuities are expensive” is factually wrong as well.  Most annuity types have no annual fees.  Only specific types of Variable Annuities and Fixed Index Annuities (with attached riders) have ongoing annual fees for the life of the policy.  Other types like Single Premium Immediate Annuities, Deferred Income Annuities, Qualified Longevity Annuity Contracts, and Multi-Year Guarantee Annuities have no annual fees and are simple transfer of risk structures.

It’s important to understand that annuities are contracts, not investments.  Comparing the two is a colossal waste of time in my opinion.  It’s apples and oranges.  I’ve come up with an acronym that covers what annuities contractually solve for.  That acronym is P.I.L.L.

• P = Principal Protection
• I = Income for Life
• L = Legacy
• L = Long Term Care/Confinement Care

If you do not need to contractually solve for one or more of those 4 P.I.L.L. goals, then you do not need an annuity.  It’s really that simple.

Unfortunately, the annuity industry pushes potential market growth products like Variable Annuities and Fixed Index Annuities as their flagship products.  It’s ironic and misleading to even mention Fixed Index Annuities with market growth because they were designed and introduced in 1995 to compete with CD returns.  That is exactly what they have done historically because Fixed Index Annuities are a life insurance product, not a security.  But that’s not the sales pitch you will most likely hear.  The popular but incorrect “market upside with no downside” is the preferred non-factual mantra too many agents use.

The annuity category has one benefit proposition that sets it apart from all other financial products.  Lifetime Income.  Annuities are the only product that will pay you a lifetime income stream regardless of how long you live.  It’s the only product that you can transfer this longevity risk to make sure you don’t outlive your money.  Just like your Social Security payments.  Just like your pension payments (if so fortunate).  There’s no ROI (return on investment calculation) until you die.  Up until then, it is a pure transfer of risk.

Annuities were first used in the Roman times to pay a lifetime income stream to the dutiful Roman soldiers and their families.  The Latin word “annua” means payment and is where the word “annuity” came from.

The fact that you probably didn’t know that piece of annuity history is part of the problem with the annuity industry.  In my opinion, the marketing focus should be educating the public that annuities primarily solve for lifetime income.  With over 10,000 baby boomers retiring every day, most of those people want more and need more income.  There’s only one product type on the planet that can contractually solve for that goal…annuities.  Doesn’t that seem like a “no brainer” from a marketing standpoint?  How about an ad that asks, “Got Lifetime Income?”  Forget milk (i.e. “Got Milk” ad), people need income!

Instead, the annuity industry and its army of salespeople focus on non-guaranteed market return products that typically have either limited investment choices (i.e. Variable Annuities) or limited upside provisions (i.e. Fixed Index Annuities).  These 2 product types just happen to also pay the highest commission.  Surprise.  Surprise.

The title of this article “don’t believe the hype” applies to the negative ads and misconceptions about the annuity category.  It also applies to the unyielding and misleading sales pitches that proliferate the airwaves about annuity products (typically Fixed Index Annuities) that sound “too good to be true.”  Always remember that with annuities, if it sounds too good to be true…it is…every single time…without exception.

Not all people need to transfer risk with an annuity contract.  You only need to ask yourself 2 questions to find out if you might need an annuity:

• What do you want your money to CONTRACTUALY do?
• When do you want those CONTRACTUAL guarantees to start?

That’s it.  Key word, CONTRACTUAL.  Annuities are contracts, and you should only make your buying decision on the contractual guarantees.  Don’t be swayed by hypothetical, theoretical, back-tested, or agent hopeful return scenarios.  Don’t buy the sales pitch dream, own the contractual reality.  Own an annuity for what it WILL DO, not what it might do.

From the 2 answers, you can find out if you even need an annuity…and if so, what type.  If you answer market growth, then in my opinion, you do not need an annuity.  Remember my P.I.L.L. acronym to understand what annuities contractually solve for.

Buying an annuity is like buying a plane ticket.  You shop all carriers for the highest contractual guarantee for your specific situation.  There’s not one best annuity or one best carrier.  If an agent or advisor says that they have the one annuity that is best for you, the real translation is that one annuity is probably best for them.

And finally, there’s only one way to protect yourself from a fraudulent or misleading annuity sales pitch.  Write everything down exactly how it was presented and how you understand it would work according to the agent or advisor.  Be very detailed and sign and date the bottom of that page.  Then flip it around and ask that agent or advisor to sign and date as well.  Either that pen will weigh 100 pounds, or the truth with come to the surface.  Either way, you win.

*Stan The Annuity Man is licensed in all 50 states and recognized as the top independent annuity agent in the country.  He has written 7 books on annuities and published over 400 articles on the topic.  Go to his website for more information at www.stantheannuityman.com

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