Ten years ago a man walked in my Vegas office, age 83, with his bride who had just celebrated her 30th birthday. He asked if I could help him find an annuity with guaranteed lifetime income, and wanted one in the multi-million-dollar range. As I questioned the rationale for someone his age wanting a life insurance product, he responded with a clarity of understanding about annuities I have rarely experienced. I was so amazed by what followed that I wrote it down. He said, "I will not live much longer, and over the course of my life I have accumulated a great degree of wealth." Though sitting next to his clearly bored wife, he proceeded with amazing bluntness. "When I die, my money will be inherited by my young wife here, who, as you can see, is not prepared to receive it. I realize annuities have fees and can restrict growth, but to insure she doesn’t just waste it all when I am gone, I would like to create an income stream for her that will last her entire life.”
It was obvious this man understood what the annuity he was searching for could do. It could be used to guarantee a lifetime stream of income to his young wife. He also realized those guarantees would cost him money and possibly lost opportunity, but both were worth it to him. I have actually heard annuity salespeople publicly claim that the client does not have to pay any fees for certain annuities, and that commissions are born by the insurance company, not the purchaser. That they could make such claims with a straight face, and that some people actually believe them, is beyond belief. The last time I checked, there aren't a lot of insurance companies that operate as non-profit charities.
In this unique situation, and with a good understanding of the product, this man made the decision that an annuity suited his needs.
As I have mentioned before, I do not dislike annuities, I just dislike the fog of confusion under which many are sold. I say “sold” because there is an industry saying that “Annuities are sold, not bought.” Few people, unlike my client mentioned above, wake up in the morning and say, "Gee, I would sure love to buy an annuity today."
These complex and confusing products are sold in great quantities to people who often do not know what they are buying, by salespeople who can have significant financial incentives to keep pushing them. This has sometimes created an unfair cloud over the products because, used correctly in the right situation, they can have significant benefits. Unfortunately, if a person is sold an annuity that is not right for them, the results are often long years of frustration and bad feelings.
Since Annuities are sold so freely, over the next couple of weeks I will share a few more examples of situations where annuities may, or may not be, appropriate in a portfolio.
Hi, I'm Dan. I'm a CFP® Professional.
Securities and advisory services offered through Commonwealth Financial Network®.
Member www.finra.org / www.sipc.org , a Registered Investment Advisor. Wyson Financial, 1173 S. 250 W. Suite 505, St. George, UT 84770.
This communication is strictly intended for individuals residing in the states of AZ,CA,CO,DC,FL,HI,ID,IL,KS,KY,MA,MI,MN,MO,MT,NE,NM,NV,OH,OR,SD,TX,UT,VA,WA,WY. No offers may be made or accepted from any resident outside these states due to various state regulations and registration requirements regarding investment products and services.