I started learning about annuities by searching online, just like you. There’s more information available now but that doesn’t mean it’s good or accurate. Much of what you see is sales-oriented, or meant to entice you to buy something. Whether it’s the right thing for you is not the concern of most people who post information on various websites. There are good people out there but it’s the exception rather than the rule.
Adds like the one I’m going to talk about today go back a long time and have made certain people millions of dollars. The idea is to draw you in and then a professional salesman takes over and you can’t say no. I’ve seen this for years and it’s a big reason why I started the website. There are lots of ways to portray an interest rate but typically consumers only see it one way. When you see a rate like this, most people think it’s some nice guaranteed growth on money but it means something entirely different.
Lots of strategies exist to make you think a greater yield is available. Companies use bonuses to make the first year look good. There’s no such thing as free money so you pay for it on the back end. The yield in the first year will likely give way to a much lower yield in the following years with the result being an effective yield that falls short of what you could get with a more simple product. Idiots with a license use stuff like this to make money from people who otherwise would not even consider annuities.
It kind of reminds me of another young guy I worked with early in my career. We had both figured out that annuities were of value to some people and had the idea to find ways to sell fixed annuities to people who wanted to protect money. I chose the long term guaranteed fixed rates. He chose the big bonus that paid a higher commission. The contracts I sold had a much better yield in the long run but he made more money. That was my first experience with self-dealing and it hasn’t stopped since.
As for the ad that many of you may have seen, reading the wording closely indicates that it’s most likely talking about an income payout but everyone will interpret it differently. If it is an income payout then that will depend on several factors. Your age and how many years payments are deferred will make the biggest difference so the 9.3% will not apply to everyone. The 9.3% is stated as a return, not an interest rate, so you have to be aware of what it really means. If someone tries to pull you in using a phony claim, is it really someone you want to do business with?
Most people who fall for this don’t realize what it means for several years. By then they are locked-in to an annuity contract after finally learning about the reality of the sales pitch. I am tired of saying that I’ve seen this hundreds upon hundreds of times. The claim is always something similar to, “I’m earning 9.3% on my money!” That’s never what it really means. I’ve been in this business for 20 years and guaranteed rates like that preceded me by more than ten years. Annuities can do all sorts of things but you should never rely on an advertisement to get what you want.
Many times, fixed or fixed indexed annuities will have a first year yield that is enhanced by an initial bonus. It’s not indicative of the long term yield you can expect. Often, annual increases on guaranteed income payments are stated as an “annuity return secret.” It simply means that your income increases by the state percentage for every year you wait to take income. Everyone knows how social security works but too many people fail to draw the comparison to guaranteed income annuities. Either way you look at it, there are salespeople who will present a flashy percentage just to get you in the door. That’s no different in this case.
The site that promotes this is run by an insurance marketing organization. It’s one of those companies that brokers insurance contracts to agents and advisors. They receive a commission when one of their agents sells a product. They will do anything to get your name on the list, only to sell your info to a hungry agent who is willing to do anything to sell you something. If you fall for it then both of those parties will get something out of it. But you will be left with something that may or may not be what you expect.
I advise everyone to stay away from third parties that hold no liability for the outcome of your retirement. This is certainly one that doesn’t have anything to offer that’s not available from a more reputable source. You might get lucky if you go for it but wouldn’t you rather be absolutely sure? If you know the difference between the two then it’s very likely that we will get along just fine.
Have a great weekend!
bryan
