Question: I’m thinking about buying an annuity and want to know if I should base my decision on the potential market growth or the contractual guarantees? Don from Iowa.
Answer: Fantastic question, and this is where I differentiate myself from most agents and advisors that recommend annuity solutions. Most sales pitches you are going to hear involve variable annuities or fixed index annuities, with the agent pushing the dream of phenomenal hypothetical or projected market returns.
With variable annuities, the market growth dream is pitched using the separate account (aka: mutual fund) choices. With fixed index annuities, the pitch is getting market returns using an option on an index (usually the S&P 500) with full downside protection. Upside with no downside sounds pretty good in a sales bullet point, but a recent 5 year study showed annual returns of 3.27%. That’s reality.
Let me stop right here, and introduce you to the saying I came up with that I tell all everyone to remember before purchasing an annuity: “Own an annuity for what it WILL DO, not what it MIGHT DO.” Will Do means the contractual guarantees and Might Do refers to hypothetical or projected returns that an agent shows you and seems too good to be true. For the record, those agent return projections are too good to be true in most cases.
Annuities, in my opinion, should not be considered as investments. Instead, you should look at these products as transfer of risk strategies that solve for specific things like income for life, legacy, or principal protection. Notice that I did not mention the word growth. Annuities should not be considered as growth products in the world of Stan The Annuity Man. That’s the antithesis of what you will hear from most annuity agents, but I sell contractually guaranteed realities…….not dreams.
If you make your annuity buying decision based solely on the contractual guarantees (or worst case scenario), you will be very happy with these transfer of risk solutions. If you buy the dream, the only satisfied party will be the agent. To sum it up, don’t buy the sizzle, buy the steak. Buy the contractual guarantees.
*If you have a question for Stan The Annuity Man, please send your question to email@example.com. He will answer all questions directly, and might include yours in his next Annuity123 “Ask Stan The Annuity Man” blog.
P.S. – Please share this article with others by simply clicking on the blue social media icons at the top of your screen!
Annuity123 does not offer insurance, investment, or tax advice. You should always seek the guidance of qualified and licensed professionals concerning your personal insurance, investment, or tax matters. Annuity123 is simply a platform allowing retirement planning professionals to help educate the community on various retirement planning topics. Annuity123 does not directly support or take responsibility for ensuring the accuracy of the content displayed in the articles themselves or any feedback that may get added in the Comments section from the community.