"I choose the likely man in preference to the rich man; I want a man without money rather than money without a man." - Themistocles

Ten Things Seniors Need to Know About Purchasing Annuities But Don’t!

By , September 15th, 2012 | 4 Comments »

senior couple

By Bob Hock

If you walk into a meeting with any financial adviser, there’s a very good chance that the adviser will present an annuity for your nest egg. Annuities have turned into the Mr. Fix-It for all age groups. An annuity is a tax-deferred savings vehicle bought mostly by seniors, and is designed to supplement income needs through withdrawals. Annuities have a spot in many portfolios, but are they being overly recommended by advisers?

Buy an annuity when you’re young…or when you’re old!

No matter what your age, a fixed annuity makes sense for your nest egg. It makes the most sense when you can take advantage of the product’s tax-deferral benefit. It also separates your retirement asset from your bank account, providing you with a greater chance of not spending it.

Interview accordingly

The annuity adviser you choose may be your most important decision. You want an adviser with a history of recommending products with eight years or fewer of back-end surrender charges.

Don’t be overly impressed by the index annuity story

Index annuities have a nice story, but lest you think that the returns will approach any equity mutual fund, expect index annuity yields to shadow the fixed rate markets.

The word annuity means income

Buy a Single Premium Immediate Annuity (SPIA) with part of your nest egg. Most Americans need a guaranteed monthly check in the mailbox. So, look to take a piece of your nest egg and buy a lifetime income stream.

If you’re getting a literal free lunch, expect an expensive product

Unfortunately, many advisers think that paying for free lunches gives them the right to sell you an inferior annuity product. Avoid any sponsored lunch at all costs.

The bonus has plenty of strings attached

Speaking of free items, always raise your brow when your adviser mentions upfront contract bonuses. Usually bonus annuities have longer penalty periods for the insurer to recoup the bonus payment. Again, nothing is free.

Don’t fall for the long surrender charge story

Some advisers try to rationalize back-end charges. Don’t fall for the cliches and metaphors. Penalties are not your friend.

A complicated product doesn’t make it better

Granted, some index annuities are not easy to understand. Just don’t buy into the idea that sophistication makes it a better product. Attempt to understand it, but if it’s all Greek to you, it’s not for you. If you don’t understand it, it’s not you, it’s the product. Walk away.

Treat your contract like gold

Your policy has guarantees inside that could one day become very valuable. Never exchange your annuity for another until you consider your contractual guarantees.

Don’t be fooled by guaranteed withdrawal benefit riders with index annuities

This option sounds good, but there’s a high probability that your returns will be minimal, and you have to leave the funds there for your lifetime. You’re essentially just getting paid your principal over your lifetime. It feels comfortable, but your money is locked up for the rest of your life. It’s a big seller, but I prefer getting my income from an SPIA.

Bob Hock writes for earlebird.com

(Photo courtesy of Ed Yourdon)

Get Your FREE Book Now

Enter your name and email address to get your FREE copy of "Guide to Shopping at Costco."

We won't send you spam. Unsubscribe at any time. Powered by ConvertKit
What did you think about this article?
1 Star2 Stars3 Stars4 Stars5 Stars (1 votes, average: 5.00 out of 5)


  • carolyn says:

    What is an SPIA?

    • Nate says:

      Single Premium Immediate Annuities. They are annuities purchased with a lump sum of money (instead of over time) and usually begin payout immediately.

  • Lauren says:

    Thanks for reading, everyone! If you or someone you love could benefit from free retirement advice and information about the complex topic of annuities, please come visit us at our blog, like us on Facebook and follow us on Twitter @AnnuityEarl. Best wishes!

    And a special thank you for giving us this platform. We’re at a time in history where seniors need advocacy more than ever, and your support is invaluable.

  • “The annuity adviser you choose may be your most important decision” was probably your most important statement.

    Here are some good questions to ask when looking for an advisor:

    • Is the person you are considering working with independent? Or is he or she tied to selling specific products?
    • How long have they been in the business? How many people have they helped?
    • Will they provide client references? Real people you can talk to?
    • Do they have a clear, concise message that’s educational instead of sales-y?
    • Does their educational material make sense?
    • Are you comfortable with them? Can they answer all your questions?

    Answer these questions to your liking, and you’ve probably found a good advisor.


Leave a Reply


Sign up for the "Saving Advisor" newsletter (Weekly)
Google Plus

Subscribe by email:

Related Articles

Previous Years Articles

Today, last year...

Copyright © 2018 SavingAdvice.com. All Rights Reserved.