Are Annuities Getting A Bad Rap?
You don’t have to search too hard on the Internet to find some financial expert with something negative to say about annuities, both standard ones and variable annuities. These products are not sound investments, they’ll say. They don’t provide the amount of returns that investors can get by sinking their dollars into other savings and investment vehicles. So should you run out and buy annuities for your portfolio?
In short, the financial press rarely has a positive thing to say about the potential of annuities.
Why is this? What, exactly, is it about these financial products that experts view as so objectionable?
A recent column by financial guru Terry Savage on MSN Money sums it up well: She says that investors should consider annuities, but only as a last resort. That’s not exactly high praise. Why should these products be considered as a last-ditch investment opportunity? According to Savage it’s largely because annuities sometimes come with sizable fees. She refers to it as financing the retirement of an insurance salesperson.
There is certainly truth in this. Consumers do have to do their homework before signing up with any annuity. Some companies and salespeople do charge outrageous fees. That’s why it’s so important for investors to get in writing exactly how much they’ll be paying for their variable or tax-deferred annuity.
Of course, you could say the same about most any investment vehicle. Consumers must always do their research, whether they’re considering investing in the stock market, buying real estate or choosing a new mutual fund. Consumers need to know exactly what it is in which they are investing.
But, and this is important, an annuity with reasonable fees can be an important part of anyone’s investment portfolio. That’s because annuities provide investors with a check every single month. That is guaranteed money. It’s also a safety net. We all know that the current economy is a terrible one. People are losing their jobs. They’re watching as the values of their homes are plummeting. Many folks have used up their savings. They are struggling.
Annuities provide a hedge against future uncertainty. You can always count on those guaranteed checks. It’s a way to feel some security in a financial world that’s anything but secure.
So, yes, the financial press is unnecessarily harsh on annuities. These are investment vehicles that certainly have a place in today’s economic world. Don’t let your opinion of them be unnecessarily soured because of the financial analysts. Meet with your own financial planner. Study your own financial situation. And ask the right questions.
You just might discover that an annuity makes financial sense.