Top 10 Annuity Myths Exposed
Market Report Reveals Annuity Critics Often Biased and Incorrect in Their Perceptions of Annuities within Retirement Planning
ANNUITIES INSTITUTE - (Chicago, IL)
If the idea of a comfortable retirement with an abundance of money sounds appealing to you, then chances are you may be one of nearly 2 million people that utilize the Internet each and every month to search for financial advice to grow your life savings.
While annuities have played an integral role in retirement planning throughout most of the last century, a new report reveals that the average consumer is ten times more likely to read information designed to discourage annuities rather than endorse them.
A market study completed this week by Annuities Institute included the analysis of more than five hundred popular consumer articles on financial planning and annuities. From the review, an alarming 93% of the documents researched contained inaccurate and damaging assessments of how annuities work within retirement plans.
“Many of the articles attacking annuities are being written by private investment advisors that want to sell mutual funds, provide stock market trading systems, or broker other money market instruments,” reports Robert Davis, executive director of Annuities Institute. “The Internet has become a very effective way to have your opinion heard. As a result, we are seeing the same ill-conceived perceptions being quoted time and time again as justification why annuities are not suitable for retirement planning.”
The Annuities Institute research included compiling a list of the most common misconceptions published on annuities, and then sharing them with professional planning advisors and retirement specialists nationally. Their comments and input were then compared against consumer satisfaction surveys sampled from a base of more than $500 billion of annuities sold to consumers between 2001 and 2005.
Among the top negative press strategies and fallacies recorded were:
1. Every Annuity is a Variable Annuity
Very often, the risk properties of the variable annuity are intentionally or incorrectly referenced on behalf of all types of annuities, undermining consumer knowledge and confidence in non-security based annuities such as fixed, immediate and indexed investments. Nearly half of all annuities purchased have nothing to do with stock market performance, and offer guarantees through fixed minimum interest rates and future protection against loss of principal and earnings.
2. Your Insurance Agent Isn’t Qualified to Offer Financial Planning
Some investment managers will diminish the value of annuities on the grounds that the insurance representative does not need a securities license to provide investment advice. However, a securities license is only utilized when selling speculative investments where the potential for loss exists. Many insurance providers focus on fixed and indexed annuities for retirement where loss to principal and earnings is not an option for their clients. They undergo continual training and professional courses year round to improve their knowledge and capabilities for senior planning.
3. Fixed Annuities Will Never Outperform Inflation
The fixed annuity offers security in knowing you are guaranteed a set interest rate over a specific period of time, and is often utilized to give long term investments more growth return and tax advantages over CDs. Some investment advisors are against fixed annuities because of their perception of future inflation. They feel that some risk must be taken to grow savings to maximize personal wealth. For investors who cannot afford to lose any of their life savings, risk should never be a substitute for long term planning and new income generation as needed.
4. All Commission Based Insurance Planners Are Biased
It wasn’t all that long ago that fee-based planning was created by large financial firms to ease client fears of non-objectivity. Their goal was to maximize medium term earnings and residual income, while having more direct control over client investments. Ironically, many within that field do not even actively sell fixed or immediate annuities for safe retirement purposes. They focus only on securities with minimum account requirements before they even offer investment management services and support. In further contradiction, earning reports for 2001 showed that only the top ten percent of insurance planners earned as much as the average stockbroker did.
5. Annuities Are All About Penalties and Surrender Charges
Like the 401k and IRA, the annuity takes advantage of special legislation passed by Congress that provides incentives for individuals to save more money for their retirement. The long term savings approach allows annuity providers to offer higher interest rates, guaranteed security, tax deferred accumulation, and positive planning benefits for tax and distribution planning. No one would typically write negative articles about how an IRA or 401k incurs unnecessary penalties for accessing money prior to age 59 ½, so why would they criticize annuities for similar parameters?
6. Never Invest Your IRA Money in an Annuity
A frequent caveat found within tips on how to qualify your financial advisor is to automatically disregard anyone who ever recommends an annuity within an IRA. The should-be obvious exception to this is when safety is paramount and loss to principal is not an option, and a fixed annuity offers a higher rate of return than other forms of traditional savings. More often than not, fixed and indexed annuities outperform other non-security investments when risk to principal and earnings is not an option. The annuity would have been selected for its interest paying capabilities as a growth investment, not as a tax deferred tool within a tax deferred account.
7. Only Deal with Big Names You Are Familiar With
While people typically gravitate towards big companies with names that are instantly familiar, brand visibility doesn’t automatically mean the best rates, service and performance. Many planners can be placed into two categories when it comes to helping select annuities for a retirement plan: those that exist only to sell products that their parent company creates, and those that remain independent to ensure they have access to the widest possible range of products on behalf of their clients. Restrictive affiliations and objective advice do not normally go hand-in-hand, as it can limit the guidance you receive for key financial decisions. Make sure the planner you select is not restricted in the advice and recommendations they can make to you.
8. Only Deal With Registered Investment Advisors
Some of the criticism towards annuities comes from professional asset managers that earn their commission as a percentage of the total money they manage and keep at risk for maximum growth. Many of them often forget that every investor is not after great wealth within the stock market, and too often seniors are talked into placing their money into vehicles that could instantly reduce their life savings. There is a significant difference between the professional investor who wants to aggressively grow their million dollar portfolio, and the retiree with $150,000 that will likely need every dollar and more to get through their retirement without outliving their savings.
9. Indexed Annuities are Often Sold Inappropriately
The opinion of some stockbrokers is that equity indexed annuities are not suitable for retirement planning, and that they are often sold inappropriately to seniors. A top complaint is that they limit the total earnings an investor can receive during upswings in market performance. The EIA though was purposely created as a hybrid investment product that combined the growth potential of the stock market with the safety features of a fixed annuity. While upsides may be capped at 7% to 12%, an investor never has to worry about losing principal or earnings, and typically has several options by which to guarantee minimum interest rates paid regardless of market performance. As far as suitability goes, according to consumer data from the National Association of Insurance Commissioners, in 2004 equity indexed annuities reached sales of $23.3 billion, with only 38 closed complaints nationally, or $614 million of sales for each complaint received.
10. Our Financial Designator is Better Than Yours
Many planners and consumers rightfully look to financial designators as an indicator of professional service, dedication, and commitment to excellence on behalf of clients. Some investment groups go as far though as stating that only two designators should be utilized for financial planning, and that the rest should be instantly dismissed. Ironically many of the members within two of these bodies do not normally even carry insurance licenses, as they focus on risk based investments for aggressive growth purposes. They offer little support to risk-adverse seniors looking for maximum security and safety for their life savings. Regardless of their financial designator, always make sure that your financial advisor understands your risk tolerance and provides service and products suited to your individual investment requirements.
About Annuities
Annuities provide many real advantages, ranging from competitive interest rates, to guaranteed income for life, to the often cited tax deferral advantages of compounding principal and interest over long periods of time in preparation for retirement distributions. They also offer many unique and beneficial ways to protect estates, avoid probate, and pass money to future heirs.
Many individuals looking for safety within their investments are being exposed to significant risk to their savings and are not even aware of it. To maximize the safety of your retirement plan, ensure you deal with a knowledgeable advisor who can provide independent and objective advice, buy only from reputable companies with a strong performance history in annuities, and never agree to anything that concerns your retirement and financial security that you don't fully understand.
For more information on evaluating annuities visit www.annuitiesinstitute.com.
About Annuities Institute
The Annuities Institute was created by a national independent network of many of the brightest financial advisors, insurance specialists, and retirement planners across the country. Their members work to provide objective and independent assistance in evaluating annuities to help reach retirement, income generation, tax reduction, and asset protection goals.
As an independent body, the Annuities Institute works to improve the quality and capabilities of senior planning specialists nationwide, by encouraging the highest standards of training, readiness and planning qualifications. They are a strong advocate of independent planning over restrictive affiliations, and promote open market access and full disclosure policies to ensure consumers are fully informed and aware of how annuities work within retirement plans.
Contact: Robert Davis, Executive Director, (815) 429 -3313
Email: rdavis@annuitiesinstitute.com
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