Recently I found myself wondering what consumer education on annuities is really like and if people are getting a good, unbiased education about them. It’s important to know that there are 3 kinds of annuities:
- Fixed Annuities
- Fixed Indexed Annuities (or Indexed Annuities)
- Variable Annuities
Our firm doesn’t use variable annuities, we primarily use fixed indexed annuities. If you’re trying to figure out if annuities make sense for you, you need to know the difference between the types of annuities.
I did a Google search to see what comes up in the top results when I searched for “annuities”. I was hoping that the sites that I found would give a good, well-rounded education on all types with the pros and cons.
What I found was quite concerning.
Forbes – Annuities: The Good, The Bad, and The Ugly
Forbes typically has well-written posts and as the top search result I expected to find more than I did. This article has no explanation of the use and structure of a fixed indexed annuity, only fixed and variable annuities.
It also characterizes that a client who does not live a long time or dies an untimely death “loses” by purchasing an annuity. It does not explain that the balance of the account would then belong to your beneficiary.
CNN Money – What is an equity-indexed annuity?
I was pleased to see that CNN Money had a resource on annuities but it characterizes a fixed indexed annuity as a combination of a fixed annuity and a variable annuity which is completely incorrect.
The advantages section of the article does not explain how a fixed indexed annuity is used to create guaranteed lifetime income, instead it only covers the accumulation phase.
CNN Money – Equity Indexed Annuity Disadvantages
This is a continuation of the previous article and under the disadvantages I was surprised to see that they highlight that some surrender fees for annuities are as high as 20% and last as long as 15 years. This is the most extreme case and is certainly not the norm so it’s inaccurate to base advice on that alone.
Fidelity – What Are Annuities?
This straightforward title from a well-known company got my hopes up but it classifies annuities as two types: deferred and income. They make no distinction between fixed, fixed indexed, and variable annuities. In fact they don’t even mention fixed indexed annuities or how they work for guaranteed income purposes.
Investor.gov – What Are Annuities?
Surely a government resource would have accurate and unbiased information about annuities, right? Unfortunately that is not what I found with Investor.gov. This post describes what a fixed indexed annuity is, but only goes into detail about variable annuities. If you’re interested in fixed indexed annuities, they leave you hanging.
Suze Orman – Truth About Annuities
I have to give Suze Orman credit because she does a really great job of explaining the accumulation phase of an indexed annuity. Unfortunately, she completely leaves out the income/distribution phase.
In the section, “Why One Would Purchase An Annuity In A Retirement Account” she does not mention that someone looking for a guaranteed lifetime income in retirement would be a good fit for fixed-income annuities.
CNBC – The pros and cons of annuities in a retirement portfolio
This CNBC article does not distinguish that the “higher costs” they discuss are associated with variable annuities, not all types of annuities. This can be very misleading. The title is “The Pros and Cons of Annuities” but the article only talks about variable annuities leaving the reader to think that’s all there is to the topic.
This article follows the pattern of many others in completely omitting fixed indexed annuity as a category. The article only covers fixed and variable annuities.
Finally, I decided I would at least look at an article from a company that provides investment advice and products. Ameriprise classifies the three types of annuities as, fixed, variable, and immediate. They completely leave out the fixed indexed annuity and they confuse the categories of annuity type with the categories of when income begins.
My only conclusion is that Ameriprise either doesn’t know about or does not offer fixed indexed annuities.
After reading all of these posts, I came to the conclusion that consumers are not getting a good, unbiased education about fixed indexed annuities. We need to have unbiased consumer education and the top results I found on Google were giving a very skewed understanding.
Later, I did a search for “annuity education” and I was thrilled to find a very good site that does a great job of explaining annuities from an unbiased and comprehensive perspective. If you’d like to better understand your annuity options, I highly recommend www.safeannuityeducation.org.
If you have specific questions about annuities and what may be right for you, please contact me.