Why Annuities Stink
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- Опубликовано: 8 июл 2024
- Clark doesn't curse on the podcast but he considers "annuities" to be one of the worst words you can use. You can't miss Clark's opinion.
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You can get a 5 year myga(multi year guaranteed annuity) that pays better interest than a cd - do your own due diligence - never take any one opinion as truth.
EXACTLY. I was doing research on CD's and it seems about 40 years ago they were having incredible returns as you could get up to 15-20% back each year. So it makes sense why more older generations are still trusting them bc that's what they did and their parents did. Year after year, CD"s have gotten less valuable and it's safer to put your money into an annuity - especially for retiree's.
@@Hughkulele wow a 15% return for a cd?
Annuities are a tool. Just like everything else. Neither good or bad, if you need them, and use them correctly. The older you get the less exposer you want to the market. At my age I'm perfectly happy with fixed income at 5 and 6% and no market exposer.
Even a good guy gets it wrong every now and then.
People so misunderstand annuities. Income annuities have no fees...it is a spread product. The ins co wins if you die too soon but those who live make out like bandits! A 70 yr old can buy one and get a 7.5% payout for life. Variable annuities have fees and may not be right for many. If a person does not have a pension, an income (immediate) annuity may make perfect sense....if they need monthly income. If no income is needed invest your money for growth. You can not outlive an annuity and the longer you live the more % you make. Policemen, firemen, school teachers all have income annuities (that is what their pension is). Social security is an income annuity. You never worry about stock mkt fluctuations and you get a check for life. Most of us like our social security checks and will love another guaranteed income stream. Saying annuities are bad is like saying bond funds are bad because they pay so little nowadays. It depends upon the need.
My annuity increased almost 15,000 dollars last year.. I would not of made that in the Equity, Bonds, etc. with this money...
Can you give a breakdown of the annuity and how much + how long you’ve had it? Curious
@@Hughkulele also, they have annuities that are 3 yrs, 5 yrs, 7 and 10 years. They act like a great CD and in 3 years you can decide to take it all out and do something else or roll it into another annuity / more months. Pay tax on the interest and not the cost basis -- not really much different than a CD except better rates.
But thats just one type of annuities. There are MYGAs (Multi-Year-Guaranteed-Annuities) which function similarly to CDs. Annuities are contracts with an insurance company. There are manny different ways to set up the contracts. Myself, I don't like the Fixed-Index type because typically the insurance company can change the terms after the 1st year. I don't like any Variable types. SPIA (Single Premium Immediate Annuities) and DIA (Deferred Income Annuities) are usually relatively straight-forward, they pay out a fixed amount every month, for a term of years or life, with options for spouse and at death. I had a MYGA throughout he time when both bond and stock markets tanked, and it was nice to still see the positive every business day from the MYGA...Now, nothing is perfect, and it is a contract, so be sure you understand it.
I like basic income annuities. Guaranteed monthly income for life. It’s a transfer of risk product.
@@jayholiday256 Yes, it is! I follow Stan The Annuity Man, got all his books. I just haven't done anything other than 3 yr MYGAs. I personally don't like giving up control like that, and inflation over time kinda waters them down. One way to deal with that is to purchase more over the years, laddering...Also, they are not backed by the FDIC, and the states typically have a backstop (my state has $250k limit)... But they can definitely be a way to go!
Fixed-Index type because typically the insurance company can change the terms after the 1st year. How do they change a fixed rate after the 1st year? why do they call it fixed?
@@melodylonganglin997 exactly! That stunned me when I read it. So, it's a contract but the one party can change the terms and there really isn't anything you can do about it! It seemed squirrelly to me. It gets really confusing when they use spreads and other gimmicks, and , they don't include the dividends in the index they are 'following'.
I've been a big fan of Clark Howard until now. Beware of anyone who slams an entire line of products without any attention to the diversity among them. A single premium immediate annuity or a delayed income annuity has none of the problems mentioned here. They are used for guaranteed income, not growth. They are pensions you buy with your own money. Don't like annuities? Then call the US government and tell them you don't want your social security payments. Social Security is a an annuity, and if fact the best one on the planet when you consider it is adjusted for inflation and is backed by the U.S. government.
I have to disagree with one of your arguments. Social security is not really an annuity, it is in fact really nothing more than a ponzi scheme run by the government. They first recipients of social security payments barely paid into social security. The payments are tied to a life expectancy and at the time that was something like 64 yrs old for a woman and sure enough the first recipient was a women who lived to be 100 yrs old.
But also I agree that this is far from a good or fair analysis of annuities. When they are sold correctly and incorporated as part of financial plan they are in fact very useful tools. He seems to be focused on only the bad.
Good reply to his argument 👍
You must be Insurance agent, I agree with Clark Howard 100%
No, I'm just someone who has done some reading on annuities. Some are very bad products, but not all.@@calvinbrown8344
so how do they come up of the specific amount when they capped the upside, is there a standard cap limit of your indexed annuity?
Clark, I'm so embarrassed for you bro, you are better than this. You clearly don't know what you are talking about when it comes to annuities and especially when you switch to talking about life insurance plan compensation when you are supposed to be talking about annuity compensation. This is Wall Street rhetoric and it is garbage. Retirement Income research has proven that portfolios with annuities reduce volatility and increase income. Do yourself and your audience a favor and update your knowledge base and understanding.
You bring up really good points about the Retirement Income research, do you have a link to the research study? I'd also gently point out that Clark's primary point is these policies have "...massive and gigantic..." commissions for the salesperson. There is nothing inherently wrong with large commissions if the salesperson is adding commensurate value, but I'd love to understand more why the fees are not disclosed. Ideally transparency should be the default choice.
An annuity worked perfect for my situation. I do not have a work pension. I had 2 IRA's so I turned one into an Annuity that has grown since 2018. I will be getting $19K per year for life. When I turn 78 I will have used up what I contributed initially, but still be getting my payments. With my SSA money and this annuity I will not need to touch my other IRA until RMD's. So I believe it can work for some people.
And you would have had 50% more had you just invested in a broad market index
Maybe, and that maybe gets a LOT more important as you get older. You could also wind up with 30 to 50% less ! I'll stick with fixed income, thanks !
@@griffinreitz7041 Yes, you could end up with 30 to 50% less in the short run, but this person is talking about turning 78 and it sounds like they've been investing for a while now. If you have a long time to invest, the numbers are clear that your money in the stock market in a fund that tracks an index (not guessing around with individual stocks) outperforms other investments.
@@griffinreitz7041 and as inflation grows, you’ll suddenly find you can’t afford anything
@@cluedinwhat for the Bull market turned Bearish. The escalator and elevator? My mum was wiped out in 2009 at age 58. She was well diversified. Her financial advisor put her money in another fund which went down further. This guy talking is selling something by putting down something else.
there are many, many types of annuities...not just fixed index annuities...normal single premium immediate & deferred annuities are good for some...I also do not like fixed index annuities
Diversify, diversify, diversify! I have money in stocks, bonds and annuities. I sleep at night knowing I have some guaranteed income for the rest of my life, regardless of how the stock market does. The closer you get to retirement, the more you think along those lines. The annuity I have is like a pension, but I never worked for one company long enough to get a pension. But yes still continue to grow some of your money in the stock market as well.
Brutal commissions? Are you serious? Clients make a lot more than the financial professional. IUL is way better than whole life. FIA’s are a wonderful tool if used correctly.
ive seen so many people who have benefited from annuities. Each person situation is different. Some may require one and some don't depends on a persons situation.
I do feel that financial people push annuity products. Even where I have my IRA. I believe the reason is that is how they can get commission otherwise if I buy a 20 year treasury bond and it sits there they don’t get a fee.
There is nothing wrong with getting a simple immediate annuity not tied to the stock market. I know many people who purchased one and are quite happy. I am NOT talking about indexed annuitities or variable annuities. You buy an annuity for what it contractually guarantees to pay out each month not what it MAY do if the market does such and such. Never use more than 25% of your assets to buy one IMO unless you have no heirs.
question on surrendering non-qualified annuity... if there is no growth in first 2 years, if annuity is surrendered with original money (minus surrender charges), will there be IRS penalty for cancelling annuity (less than 59.5yrs).?. Since there is no growth, I feel no IRS penalty. Right?.
Ex: Invested 100K money 2 years back with non-qualified money (like savings account). No growth yet. Surrendering contract will give 100K -6K = ~94K. No IRS penalty in this case. Right?
How do you get out of it?
There are no surrender charges. They are deferred sales commissions that you pay each year until you have paid the full deferred sales commission. The so called surrender charge "goes away" as you pay it. Getting out and paying the balance of the deferred commission is your best move if you are going to a better investment option like a no load investment such as an S&P 500 ETF.
Annuities aren't investments, they are insurance.
Are there commissions on immediate annuities
Last time stocks and bonds were returns were negative was back in 1969 not 130 years ago
Non coincidentally a time of elevated inflation... Regime change
Annuities are fine.
Clark, I think a more accurate title for this video should have been Why Do Indexed or Variable Annuities stink. SPAs, QLACS, DIA are simple and in no way deceptive and great for those who do not have the constitution to see a dramatic decline in the value of their accounts from time to time or for those who have a very short time horizon before they need to access their savings. Also, Indexed or Variable annuities may have unacceptably high fees or commissions which is why unethical agents push them. In fact during "Jimmuh" Carter's years as President interest rates were so high, that many who purchased SPIAs "made out like bandits".
My annuity will cover my expenses till 80 years old as I can not worry about my stock portfolio as it can grow to meet my future needs if I live longer
I have no pension but i put all my 401k and cash into annuities which (with my SS) will pay me $3500 a month after taxes ($42,000 a year after taxes). I will retire in 2026 at the age of 62!
Tom hegna and Stan the annuity man says it’s the best retirement tool out there
they are extremely beneficial for retirement. CD's and stock market not so much for obvious reasons. Most retirees i've spoken with dont want to lose a dollar of principal, but want to still have something coming in more than CD's. Depending on the product, annuities are just that
Only talking about one Annuity product. There are many. So stocks like Enron and Boeing are better??
I wouldn't buy single stocks either. (Too much risk of losing A LOT.) Mutual funds are the way to go.
Well, yeah, that’s the trade off, you don’t get all of the market gain but you dont ever lose anything either. If the market goes down you get zero gains that year. Also, you never lose any of the prior gains. This is NEVER mentioned by annuity bashers because they are ignorant of how they actually work. They are a safe money product for retirement age people. There are also ones that have no cap. Clark is just regurgitating what others have said without actually investigating. Commissions are not as much as the premiums. That is ludicrous. Why are these guys always so worried about what the salesman make? Everyone that provides a service or product is paid somehow. Clark and Ramsey should stick to how to save money and live frugally. They are not trained, not in the financial planning business and woefully ignorant of investing and the entire general subject.
Is a Single Premium Whole Life Insurance policy an annuity?
no, it's life insurance that builds cash value.
get term life instead.
Something like a "single premium immediate annuity" (SPIA) is a fairly expensive insurance product but it is not in the same league of horrible as many of the others. In that product you are essentially buying an income stream for life, based on your life expectancy and the current prevailing interest rates. They aren't a great deal either, but they aren't as bad as most of the annuity products peddled out there. In some sense, those are like "buying a pension".
Life insurance is not an investment. Use term life only.
@@thedoor5442 Can't use term they stop covering you at 80 years young. Term is throwing your money away unless you die then, it's good for the living.
Clark is a rebel rouser. Anybody who fights the system.
A “rabble-rouser” also.
What about SPiA's?? your only talking about one type of annuity..
The commission is 6-7% depending on the company you’re buying from
I knew they were bad but I didn't know why. Thanks again for your explanaction.
So if the market completely fails, how would the annuity provider honor their obligations?
Cash reserves that are mandatory that every Annuity company is required to have. It's called a "Solvency Ratio". For every dollar they have under asset they usually are reuqired to have 1-$2 to back it. Let me ask you this- if the market completely fails, how do they stocks you're invested in honor their obligations??? Answer- they don't! They don't have any oblogations for solvency what so ever. i.e- Enron, WorldCom, etc.. So if the market completely fails, what does it matter what someone is invested in?? Stocks or Annuities, if the market fails then nothing is of value no matter what investements someone had.
They won’t. They aren’t insured either.
@@lindawer That's not true. Do some reserach on State Guaranty Associations instead of giving incorrect answers.
@@jeremyryan7632 they aren’t insured under FDIC. Most explicitly say they aren’t insured.
@@jeremyryan7632 I guess the best advice is read the fine print. If the economy collapses and everything fails these insurance associations will not be able to cover all claims fully. The good news is everyone will be in the same boat.
Annuity = a savings account with an insurance company that is loaded with fees/commissions and ties up your money for at least seven years. It's garbage.
Excellent, fact focused, informative video.
Nope, it's a bushel of lies meant to scare you into buying whatever it is this guy sells, which I suspect is heartache.
@@mitchellglaserhe doesn't sell anything unless there is a book you could buy.
Invest long-term in mutual funds is likely his advice. He isn't selling mutual funds.
Really disappointed in Clark on this. I've listened to him on radio for years, happily. But he is completely wrong on a couple of key things. He conflates Fixed Index annuity commissions with life insurance commissions. His sidekick asks how much commission is paid on a $100k annuity. Clark's answer is just wildly wrong; it's not up to 100% of first year premium. It's about 6% on average, so $6000 in this example. And it does NOT come out of the invested cash; $100k would go to work. Clark is right about a lot of things but not on this.
Clark spreading misinformation. Like anything do you homework. Look up Stan the Annuity man on RUclips for some truthful info.
I will forever be indebted to you you’ve changed my whole life I’ll continue to preach about your name for the world to hear you’ve saved me from a huge financial debt with just little investment thanks so much Mrs. Rly Ashelys
Amazing that you know her too. It's only been a few months with her, my portfolio has grown tremendously and i've been making lots of profit
Mrs Ashely is a prayer answered, I was at that point of giving up when i met her, she turned the tides around
You invest with Mrs Ashely too? Wow that woman has been a blessing to me and my family.
I’m new at this, how can I get in-touch her?
you can communicate with her through her telegam user name below
Idiotic advice. No one promises "Stock Market Like" returns from an annuity! An annuity is not intended to be a long-term growth investment and is used for specific situations. Comparing an annuity's "growth-potential" to that of the stock market in general is apples and oranges, and blanket characterizations that "Annuities Stink" is irresponsible. They have their place - say a person going into retirement who doesn't haver a portfolio sufficiently large enough to weather big stock market drops in the early stages. An annuity can be a very good way to provide steady, predictable income decoupled from market fears, and is well suited to protect against the need to pull funds from retirement accounts to live on at the absolute worst time to do so. Like many things, there is a right answer for every person, and blanket statements like this are not only WRONG, but very IRRESPONSIBLE!
So we take it RUclips affiliated NICER Fiduciaries will be installing permission validation to hold out famous families together without the legal documents? On Templates stored at NICER 837PC, US Government, and County registration of ancestors, clients, elders, grantors, parents, defending successor client heir grantee beneficiaries with permission ledger security.
Just because someone makes good commission it doesn't mean that the product is not legitimate or good. This reasoning is ridiculous. He doesn't talk about fees in brokerage accounts or taxes you have pay on market gains when you sell, or the fact that most people are not trading professionals and would likely put themselves in bad market positions vs having a 100 year old financial institution back your money and give you guaranteed minimums, which no variable product has guarantees.
They have to make money with your money in order to pay you the promised returns. The commissions are large and take away from the money they can pay to you. Therefore, the commissions matter.
I always say "Annuities are for Suckers"
You are severely misinformed! I normally agree with a lot of your content but on this topic you are spewing disgusting and inaccurate information. Indexed Annuities have “MASSIVE” commissions?!?! Really?? Most Annuity Producers commissions range between 5%-8%. That is over the life of the contract so most contracts are 10yrs so if a Producer made 7% over 10yrs compared to financial advisors like Edward jones/Raymond James who make .75-1% a YEAR then do the math. Who made more commission??? Ding ding ding…..The Financial Advisor did!!!! Oooh and where did the commission come from to pay the financial advisor???? Out of the CLIENTS ACCOUNT!!! Where did the commission come from to pay the annuity Advisor??? From the COMPANY not the CLIENT!!! So if someone is with EJ/RJ and they lose 5% in the market for that year they still have to pay their advisor their commission so actually they paid someone to lose their own money!!!! Haha!!! If a client is in an indexed annuity do they lose money??? No they don’t. Now, yes it’s true they don’t see all of the upside returns if the market is up but it’s still better than paying someone a commission to lose your own money!! A lot of the indexed annuities today have cap rates but a lot also have 80% participation rates which means the client can receive 80% of the gain in a year (i.e…market up 10% then clients gets 8%) with no downside loses!! EJ/RJ can’t even come close to offering anything near that!!! I’m not saying annuities are a perfect fit for everyone but most people in the retirement years should definitely look at indexed annuities to protect their nest eggs from market loses because the number 1 problem seniors have in retirement is running out of money- what does E/RJ do for their clients to protect them from market loses or running out of money???? Nothing!!! I won’t even get into your ridiculous surrender charges comment. Again just severely misinformed information you are giving to your listeners.
The facts are still annuities are a bad idea for people. They cost too much for what they offer. A person can accomplish the same thing through proper asset allocation and not pay the fees.
@Nate Randello
i disagree just saw a video a screwed up asset allocation means you lose money unless you have a planner which cost 0.5 -1% anyway, and they can do it wrong. Some people don't like the risk. Know what you are buying and stick with it. An annuity should only be a small percentage of the total plan. SS is an annuity if the government would NOT MISHANDLE IT SS would be much stronger. I do not have an annuity but after looking at them I think they can work for small savings.
@@DaJonez24 again, nothing but incorrect information. Cost too much for what they offer? Let me ask you- how much does an Indexed Annuity cost per year??? You don't know the answer so I'll tell you- NOTHING!!!! ZERO!!! I'm talking about a regular Indexed Annuity- not with lifetime income riders or anything like that. Not Variable Annuities, Multi-year Annuities, etc...Just Indexed Annuities. The client pays ZERO every.single.year!! How much does it cost a client to be with Edward Jones/Raymond James?? (EJ/RJ) Usually .75-1%. Oooh and if a client loses money at EJ/RJ in a year do they still pay them a commission?? Yup, they sure do! So in the past year the average loss is around 17% and the clients still had to pay (.75-1%) their advisors a commission.........TO LOSE THEIR OWN MONEY!!! haha!! So they really lost more than 17%!! Wow, looks like "proper asset allocation" really worked huh??? Understand that Indexed Annuities are probably not a good fit for people below 50yrs of age- I'm not talking about those people. Those people are still working and contributing to retirement accounts and can handle 10-20% losses because they have the years (time) to make it up. But people 60+ do not have the time (years) to make up 10-20% losses when most are on fixed incomes and they only have their nest egg left to live on. Do some research and don't listen to this crap that Clark is spreading!!
Jeremy is exactly right ... if you had a million-dollar balance in your brokerage account your average fee is 1% or 10,000 a year and it increases as your account increases. Oh by the way if you are in the financial service business, there is a higher financial incentive to put the money in the market than to sell an annuity. Basically that is residual income for as long as the person has the account with them. Fyi, that management fee may not include additional fund fees.
Found the annuity salesman