Fixed annuities are the most misunderstood financial product of all time.  There are many myths and mis-information about fixed annuities stemming from un-educated journalist, politicians and unfortunately, financial planners.

However, the main reason the media and others demonize fixed annuities is because no other financial products can compete.  Thus, to protect their own interests and agendas they must distribute incorrect propaganda about annuities to keep their business viable, but this doesn't help you, the consumer.  So who's interest do these persons have in mind?  You or themselves?

That being said, do your due diligence and you too will find fixed annuities are one of the strongest financial vehicles in the world today.  So lets get to financial fiction and financial fact about annuities.

1) A fixed annuity is an investment.

Not true. An annuity is a insurance policy in which a person purchases a contract with premium to protect their principal and guarantee they will not outlive their money.


2) There are huge fees and penalties.

No, there are "no" fees and only "voluntary penalties". Every contract is different, however, almost every annuity has a surrender charge schedule that if you exceed the free withdrawal amount, usually around 10 percent per year, you may suffer a "voluntary penalty".  On most contracts the surrender charge schedule only lasts 3, 5, 7 or 10 years.  The longer the schedule the more benefits to the insured.  The insurance company has acquisition cost they committed to, thus, providing the insured with all of the wonderful guarantees within the policy.  An annuity is not a place for "all" of your money.  You must keep money available for immediate emergencies.

Furthermore, when comparing the fixed annuity to brokerage accounts the client is constantly paying management and/or service fees.  If your stock broker is charging you 2% on your money (whether you gain or lose) you first have to earn 2% before you ever break even.  Every year you immediately start in the negative.


3) Annuities are not suitable for seniors.

This one falls right on its face. The purpose of an annuity is to guarantee a lifetime income stream throughout retirement. Furthermore, almost every annuity has a terminal illness wavier, a nursing home wavier and some offer long term care benefits.  Those features certainly wouldn't be appealing to someone who just graduated college.  No, they would be appealing to someone who is entering retirement or already retired.


4) Annuities pay the agent high commissions.

Some do and some don't. First of all, the consumer does NOT pay any fees or commissions. Also, does anyone work for free?  Secondly, I suppose that argument could be relevant if an individual were to set up large contracts every single day, which doesn't happen. The truth is the average insurance agent earns $50,000 to $100,000 per year. Although, some agents work extremely hard and earn more.  What is truly interesting is agents are paid almost double for life insurance sales compared to annuities, yet no one writes that article.

Plus, the agent earns a "one time" commission on average of 5%, compare that to the stock broker who is charging 2% each and every year.  In 5 years he would have earned 10%, in 10 years that's 20%, in 20 years that's 40% of "YOUR" money.


5) The annuity date or maturity date makes the annuity unsuitable.

No doubt my favorite myth.  The annuity or maturity date is set by the insurance company at a later date sometimes after life expectancy. However, the annuity or maturity date simply means that it is the longest period of time the insurance company is going to allow you to keep the contract in deferral.  At the time you reach the annuity date you must do something, annuitize the contract, walk away or buy another.  Most companies allow you to change the date after the first contract year.  Because an annuity is a contract, you cannot have an open ended contract with no set date.

6) Annuities won't even keep up with inflation.

Complete, utter, sales talk.  First of all, when the Department of Labor calculates inflation, they combine each and every product and service into the consumer price index.  However, no one is purchasing each and every product year after year.  Do you buy a car, house, washer, dryer, air conditioning system, plasma tv, etc. every year? No.  Furthermore, inflation is created by the government's control of the money supply.  More dollars to spend equals more demand which in turn equals higher prices.  If the government decreases the money supply then just the opposite would be true.

In addition, if your fixed annuity has been earning 5% each and every year, but if your stock broker lost you 39% in one year, how well did that keep up with inflation.