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Annuities - The Best Financial Product No One Wants! - YouTube
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and today the topic is
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annuities. The best financial
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product no one really wants.
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Dick: Can you imagine that no one would
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want an annuity, Eric? Is that a
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true statement?
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Eric: No, the people I talk to every day,
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everybody wants an annuity.
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Dick: But that's different. Folks, the
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people that we talk to may be
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someone like yourself that's actually went
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to our national website, as Eric
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likes to remind me, international website.
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Eric: International website.
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Dick: But goes to our website and they're
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already in the mindset of
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annuities.
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Eric: Right, they're doing their research.
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They're doing the background on
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why this might work for them.
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Dick: So we might be just a little bit
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skewed, do you think?
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Eric: We're taking it based off an
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article, and interestingly enough, it
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was written by an actuary who works for an
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insurance company. His comment
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and I love this, "Annuities are not sexy.
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You hand over your money to an
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insurance company who then puts you on a
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seemingly stingy allowance for the
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rest of your life." Well, that sounds
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pretty pathetic, if you ask me.
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Dick: I do have to say that, before I knew
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much about annuities, many
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years ago that never entered my mind,
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never crossed my train of thought.
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Would I rather have a new car, a new
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house, or an annuity?
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Eric: Rather than an annuity. That's not
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fair. Everybody would rather have
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a new car or a new house.
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Dick: That's right, and really when you
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think about it, and that's a lot
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what this article gets into is we built
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this money up. We accumulate this
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money and we like the idea of hanging onto
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it, controlling it, investing
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it, whatever we choose to do with our
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money, but to hand it over to an
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insurance company and let them give us
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money back, it's kind of a
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transitional state that we go through to
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make these types of decisions, and
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there has to be a pretty good reason
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behind it.
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Eric: I come from a family of educators.
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I've talked about that before.
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Eric: You know right now in Illinois,
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we're fighting. They're fighting to
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maintain their pension. Well, what's an
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annuity really?
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Dick: It's a pension-style income.
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Eric: I mean for today's 401k investors
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they're basically, when you get
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your retirement you've got this lump sum.
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Do you want to keep the lump sum
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or would you rather have a pension?
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Dick: The vast majority of retirees before
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they retire and they have this
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choice, not all companies give this
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choice; but there are a lot of
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corporations that will give the employee
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the choice of a lump sum or a
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pension. Now the vast majority choose the
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pension. They've worked their
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entire life.
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Eric: For the seemingly stingy income for
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life?
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Dick: Yeah, and yet, even those that would
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take the lump sum, in many
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cases will turn right around with that
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lump sum, and buy a commercial
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annuity that they feel is a better option,
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than maybe the pension the
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company was going to offer. So we tend to
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get it when it comes to that lump
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sum that comes from the employer, but yet
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many times we've worked all of
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our lives, built up all of this money and
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what's the purpose of it?
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Eric: It's mine. I want to keep it.
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Dick: What's it supposed to accomplish?
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Eric: That's exactly it. It's just future
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spending. It's not savings. Its
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future spending is what we've save for,
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but we don't think of it in those
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terms. We think of it as "This is money I
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saved. I don't want to give it to
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somebody and then have them, give me a
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seemingly small allowance."
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Dick: Right, and that's where the
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insurance company's job, their job is to
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look at risk, to manage risk, to know
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what's realistic. You'll have to read
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this report, folks and kind of get the
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gist of what this person's saying,
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because he actually is an actuary and he's
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really laying out that these
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insurance companies don't always win on
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this stuff.
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Eric: And he talked about annuities are
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much better-the design and what
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they payout in today's era, is much better
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than they were 10-20-30-years
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ago.
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Dick: Right, a lot's changed.
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Eric: You really do have an actuarial
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advantage to buying an annuity and
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he admits that, even though I know this
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advantage exists, I'm not so sure.
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Dick: I might be standoffish when I first
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retire, but maybe as my age
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advances I'm going to be more apt to do
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this. This kind of brings me back
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to a lot of the buzz that is out there and
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things we talk about with the
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hybrid annuity but one of the things that
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appeals so much to folks, on a
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hybrid-style annuity is that they are able
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to control that lump sum. What
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we call majority control the first
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10-years or so of an annuity. You have
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some surrender charges, so you control
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about 90% of it during that first 10
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years, and those surrender charges
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decline, so after 10 years, you control
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100% of it and you still have a lifetime
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income. And yet, if you haven't
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used that money in your account, it can
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all go on to your heirs, your
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spouse, whatever is important to you.
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Eric: Exactly. In his life point, I guess
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in summation here he talks about
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you know what? Everybody has, even if you
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have that lump sum investment you
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have, usually a portion that's in equities
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and you have a portion as you
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get closer to retirement that we should
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all be moving into those fixed
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payments, bonds, CD-style. What would be
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wrong with taking those more
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conservative assets, turning that into an
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annuity and then just truly
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letting your equities run, and knowing you
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have that guarantee that income
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coming on?
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Dick: Well, Eric obviously this is what we
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talk to our clients about. We
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talk to them about balanced allocation.
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Not putting everything into
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annuities, not necessarily having
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everything in the market. Finding that
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balance that works for each individual,
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and so to me, he's right along the
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lines of what we continue to explain to
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people.
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Eric: Exactly, yes. He takes care of the
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foundation very well.
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Dick: So Eric, would you say that an
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annuity is something that no one
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wants?
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Eric: All right, there are a few people
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that want annuities.
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Dick: Well, folks we're not saying that an
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annuity is going to be the end-
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all and the be-all or exactly what you
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need, but you do want to look at it
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closely and determine where it might fit
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into your overall financial
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picture. We really appreciate you spending
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the time with us, today.
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Eric: You have a great afternoon.
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