Annuities: The Good, The Bad, and The Ugly

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Annuities, the good, the bad, and the ugly. Hi, I’m Ken Hargreaves. I hold a master’s degree in personal financial planning. I’m a certified financial planner and president of WealthGen Advisors. Now, I feel there’s a lot of questions lately regarding annuities, and today I’d like to talk about the good, the bad, and the ugly on annuities for retirement planning. Now, let’s start with the ugly. Well, insurance companies and annuities have had a pretty bad reputation over the last 15 years. And why is that? Well, for one, we’ve probably heard a lot of horror stories of questionable sales practices that ties up too much of their wealth in the wrong type of annuity product. The next reason is high costs. Now, it’s true. Many annuities carry high costs. When you start to add in rider benefits and other bells and whistles, these can be quite shocking.

Now the low interest environment has been around since 2001. That’s over 20 years with pretty low and favorable rates for mortgages and loans, but not so great for annuity accounts or withdrawals. So let’s talk about the bad. Well when one makes a major financial decision like purchasing an annuity without consulting an independent certified financial planner, it may not align with their long-term financial goals. Now they help you answer questions like, how much do I put in? What type of annuity is best for my stage in life? And there are hundreds of different types of annuities, products, and benefits that all can be curated to fit one’s particular needs and goals. Now time and care should be spent really understanding the problem the annuity is solving for and also what purpose it serves. Annuities rely on the insurance company’s ability to honor that contract.

Now, there are instances where insurance companies either did not act crudely in the management of their own book of liabilities, AIG in 2008, or their assumptions were way off. So the promises for products like long-term care insurance or annuity payouts were impacted. So it’s important to study the credit quality, history, and promises of an insurance company to help in your decision. Now let’s talk about the good. Annuities aren’t all that bad. They do offer a few very powerful benefits to individuals. In today’s high interest rate environment, we’re seeing some fantastic rates for annuity products and withdrawal rates. For example, one can use a lifetime annuity payout with a high rate of withdrawal that can take a little pressure off of taking money out of your own investment portfolio. Annuities also offer true diversification for market risk. As we saw in the great financial crisis, when the market crashes…

diversification may not work as well as we’d hoped. With certain types of annuities, they can truly act as a diversifier to large corrections. Some offer guarantees of principle or only a small percentage of downside risk, which offers great diversification from the market. And lastly, the peace of mind in a guarantee can have a big impact on your retired lifestyle and mental health. Now these are just a few examples of the good, the bad, and the ugly of annuities. It’s really important to consult with a CPA and a certified financial planner before making any decision on whether or not annuities belong in your portfolio. I hope you found this helpful. Feel free to click and subscribe for more insights.

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Ken Hargreaves - Wealth ManagerKen Hargreaves - Wealth Manager

Ken Hargreaves

Founder, Wealth Manager
Shane Klemcke - Wealth ManagerShane Klemcke - Wealth Manager

Shane Klemcke

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