Buy the Simplest Annuity that Meets Your Personal Financial Goals

Annuities are definitely not one size fits all, and they shouldn’t be bought or sold that way.  I have to agree with Stan “The Annuity Man” Haithcock on this one.  In his Marketwatch article, “No all-in-one annuity cures; take a ‘PILL’,” he compares an annuity to a Swiss army knife to see if one annuity can have all the tools needed for your retirement.  Spoiler alert: it cannot and that is something that Annuity FYI works to help consumers with all of the time.  

Annuities should be used as part of a retirement plan and the annuity you choose must be based on your individual needs and goals.  The author of this article doesn’t like using annuities for their growth potential and that is certainly his prerogative, but variable and indexed annuities do have their place in some retirement portfolios.  While they won’t offer the growth potential of some non-annuity products, they often offer better guarantees on your money and other benefits as well.

Stan prefers annuities to be simple and often, simpler is simply better.  His motto of using the PILL approach to annuities includes the benefits of principal protection, income for life, legacy, and long-term care.  If you are looking to solve any or all of those four problems, a simple annuity with low fees and short surrender charge time frames is best.  When shopping for an annuity, look for one that is trying to solve your immediate need, as opposed to an annuity that has everything.  

The more riders you add onto an annuity, they more you will pay in annual fees.  There is no reason to add on a death benefit, income rider, or add on confinement care expenses if you don’t need those things.  It sounds simple, but a lot of people go into buying an annuity with the mentality that they need everything.  If you have life insurance or long-term care insurance, you simply may not need an added rider and cost for your annuity.

Newer annuity products on the market are sometimes advertised as being “hybrids” that offer benefits of multiple types of annuities.  Stan doesn’t believe that these new products offer additional benefits, and he is right that you should tread carefully when considering them.  If you are looking for two types of protection or guarantees with your annuity, a so-called hybrid could be right for you if the cost brings you value. 

Also consider looking at an annuity to cover your main goal, like a lifetime income stream, and see if adding a rider on for something else is a better value in your financial plan.  Shopping around is the key to buying the right annuity, not necessarily the annuity that has “everything.”  Buying an annuity solely for an upfront bonus or a confinement care rider is rarely a good idea.  If an annuity has exactly what you need and offers one of these bonuses, great.  An expert financial advisor can help ensure that you do not purchase more than you need or less.

Written by Rachel Summit
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Advisors Call for Variable Annuity Transparency, Inflation Protection

Date posted: September 26, 2013

An adviser isn't likely to sell you an annuity that they don’t understand, or at least they shouldn't.  Many advisers called out for insurance companies to make sure their annuities are straightforward at the IRI’s annual conference.  Darla Mercado’s Investment News article, “Annuities changes puzzle advisers,” talks about what advisers hope to see from annuity products.  Not only do advisers need to know the ins and outs of the annuity products, but it’s important that they can explain the way the annuities work to their clients.  More specifically, variable annuities’ features and investment options are puzzling some advisers, especially when changes are made during the duration of the annuity contract.

Variable annuities have helped many investors during the financial crisis because of their particular features, but advisers hope that some changes can be made.  Clients seek advice from advisers because they trust that the advisers can recommend a product to help their money grow the way they desire.  Advisers admit that some variable annuities may be a great fit for certain clients, but their complexity takes them off the table.  Even if the advisor can mire through a tricky contract, they can’t always explain it to their client and often worry that they missed something in the contract that could be detrimental to their client’s money.  Because of this, a variable annuity that is a good fit for a client might be overlooked.

Changes in investment options are the biggest worry for advisers right now.  They are particularly focused on products using hedging strategies to protect insurers from market volatility and how these changes will affect the return that their clients see.  New options don’t have a history to prove to advisers or clients that they will offer a decent return and perform how the clients expect them to.  But advisers point out that many clients are more concerned now with guaranteed income in retirement, rather than large returns. 

Even so, advisers want to make sure that they understand the contract options and can explain them to their clients, large return or small.  Some advisers are asking for more inflation protection with variable annuities in case there is no return based on market performance.  I have a feeling that insurance companies are listening to advisers and will work to make variable annuities transparent and maybe even add on some guaranteed inflation protection.