Response To The AARP’s Annuity Article
You may have seen a column by Jane Bryant Quinn in this month’s AARP Bulletin about Fixed Indexed Annuities (FIAs). Fixed indexed annuity sales totaled more than $60 billion in 2016 and continue to grow as an asset class for retirees and pre-retirees. Ms. Quinn’s concerns are somewhat valid, but not wholly accurate. To wit:
“Salespeople might claim that FIAs could earn 6 or 7 percent a year.”
If any salesperson promises these kinds of returns on FIA’s, RUN!!! The income riders on indexed annuities can roll up in that range, but cash value growth will likely never come close to those numbers.
“Salespeople might claim, falsely, that their services are free.”
We are sure to always be transparent regarding fees. There is no fee to the client to open a fixed indexed annuity, but the agent is paid a commission from the insurance company. We’ll always disclose our fee structures, and as fiduciaries, be up front about how we get paid.
“You can usually withdraw 10 percent in cash, each year, without breaking your guarantee. But you’ll owe surrender charges if you need your money back before five or 10 years are up.”
Again, know who you’re working with. As fiduciaries, we’ll always leave enough liquidity in your retirement income plan to cover emergencies and spending. It’s very rare that we’ll put more than 50 percent of a family’s assets into a single asset class, and this includes FIA’s.
“For about 1.5 percent a year, you can add a ‘guaranteed lifetime withdrawal benefit’ to your FIA.”
This fee number seems extraordinarily high. We rarely use products with rider fees higher than 1 percent. Compare this to variable annuities, which can often have total annual fees at 3% or higher, in addition to the potential to lose principal value if the market tanks.
Are fixed indexed annuities a perfect product? Of course not! But they do fill an important need for safety and income in many portfolios, and we use them often to meet those goals in our retirement planning process.
Want to learn more? Give us a call at 215-657-9200 and see if a Fixed Indexed Annuity might be a good fit for your retirement portfolio.