The annuity business is hot right now. Fixed Annuity rates offer the best-guaranteed rates on the market right now. Banks simply cannot compete with insurance companies over the long term. However, be careful with annuities and their aggressive marketing campaigns.
I was driving to the office this morning and came across an ad for an annuity product. The guy pitching the annuity said it earns almost 10% per year and has a 25% bonus.
Let’s say you had $100,000 to invest. There is an insurance company out there that is willing to pay you close to 10% a year for a certain time period and give you $25,000 up-front just for signing up? If that is true, tell me where to sign up.
If you don’t trust your ability to interpret the marketing, find a trusted friend or family member who can. Here is the slimy truth about annuity marketing. They market these products as if they were a CD. You put your money into the account, make a guaranteed gain of nearly 10% each year, and get a 25% bonus from day 1. Then, when your term is up, you get to keep all of the earnings and your original principle.
If you read the fine print of this product, you will find the marketing on the surface is true. However, deeper into the details, you will find that there is little truth concerning how that annuity really works versus how it was marketed.
So, here is the small disclaimer on the advisor’s site. If you want the real details, you have to give over your name and number.
"Any examples provided are hypothetical. Annuities are issued with prospectus and sales brochures and should be reviewed carefully before investing as features and benefits vary.”
Hypothetical results are defined as results that may or may not be real based on hindsight. They are results based on a given set of scenarios after the fact.
Annuities can be a great investment and can serve a role in a diversified portfolio. However, you need to understand how they work. Most importantly, make sure you are working with the best companies who offer realistic expectations and understand how the guarantees work.
If you have further questions for Bob, please visit the Ask Bob page on the website, and Bob will get back to you.