Sounds great on the surface, but there are many different types of annuities with substantial differences between them—and not all of them provide the “safety” investors want. While annuities may seem appealing, they’re often complex and can have significant tradeoffs. Investors should do their due diligence so they know exactly what they’re buying and can understand all of the annuity contract’s fine print, terms and fees.
Fisher Investments does not sell annuities. We never have, and never will. Why? We believe anything you can do with an annuity can be done better with other investment vehicles. We have worked with countless clients who purchased annuities that did not meet their needs. Many annuities are complicated products that promise many things, but their features can prevent investors from reaching their long-term investing goals. That’s why we’ve put together these resources—so you can make informed decisions about annuities.
Common Annuity Disadvantages
Many financial firms, advisers and brokers offer insurance products, like annuities, to help retirees meet their income needs. They may tout annuities as a guaranteed lifetime income or as a way to reduce required minimum distributions to make annuities sound like the perfect solution to the challenge of generating income in retirement.
Unfortunately, many investors discover annuities fail to deliver on this promise. While we dive deeper on the different types of annuities below, here are some common disadvantages of annuities:
Layers of fees
Some types of annuities often come with complex, layered fees, which can substantially lower your returns. Buying an annuity is like buying a car—the more features an annuity has, the higher number of fees you can expect to pay. For example, some charge fees for adding a survivor benefit or opting for variable income versus fixed—these fees are on top of administrative fees, commissions and investment product expenses.
Once you purchase an annuity, it may be difficult to access your money if you need it sooner—or want to change your strategy. If you face an unexpected expense—anything from medical bills to a new roof—you may incur costly surrender fees that could set you back on your path towards meeting your long-term goals. And if you take more money than the insurance company allows, you could also be penalized in the form of reduced benefits moving forward.
Limited Growth Potential
Annuities often advertise protection in stock market downturns, but they can also prevent you from fully benefiting when markets are up. For example, a fixed indexed annuity may guarantee 0% downside during market downturns, but the tradeoff is often low, certificate of deposit-like returns over the long term because of the product’s low growth potential.
How We Can Help
In our experience, investors often don’t fully understand how their annuity works. We can help answer your questions. You likely wouldn’t buy a house without having an experienced third-party inspection. The same logic holds when it comes to doing due diligence on a potential investment. You deserve to know exactly what you’re getting into and whether it’s the best way to achieve your long-term financial goals.
We created our Annuity Evaluation Program to help educate investors about the annuities they own or are considering purchasing. We believe our fact-finding and analysis can offer you insights into annuity features you may otherwise overlook or misunderstand—including income, fees, penalties, death benefits, riders and more.
We can help you determine if an annuity is a good fit, given your financial goals and your time horizon. If you decide your annuity isn’t the best option for meeting your financial goals, our team may be able to offer a solution that is more efficient and effective toward helping you reach your long-term goals.Schedule a Free Consultation
Risks of Annuities
Listen to our founder Ken Fisher discuss the dangers of annuities with renowned investor Jim Cramer.
The Evaluation Process
Step 1: Gathering Information Specific to Your Annuity
Before we provide any information on whether a particular annuity makes sense as an investment for you, we start by gathering information directly from the insurance company to begin analyzing the specifics of your annuity.
Step 2: Evaluating the Facts and Figures of Your Annuity is an Investment
Our comprehensive annuity analysis will review your contract and personal situation at an exceptional level of detail.
Step 3: Explaining the Results of Your Annuity Evaluation
Once our team has the opportunity to thoroughly review the details of your annuity, we will walk you through the various features identified.
Step 4: Determining If Your Annuity Is The Right Investment For You
If you are comfortable with your annuity strategy, you are free to carry on without any obligation to Fisher Investments.
Step 5: Fisher Investments' Annuity Conversion Option
If you determine, after this thorough review, that your annuity isn’t the best option for your financial goals, our team may be able to offer a better alternative for meeting your needs.
Annuity Fee Credit Terms & Conditions
Limited offer: Fisher Investments reserves the right to cancel, suspend or modify the offer at any time and for any reason without notice.
The offer is available only to qualified investors who become clients of Fisher Investments and who surrender an annuity and transfer the proceeds to be managed by Fisher Investments. Nothing in the offer infers any right on any person to become a client of Fisher Investments. Fisher Investments reserves the right to refuse or terminate any person as a client for any reason. Any request to participate in the offer is subject to acceptance by Fisher Investments.
The maximum surrender cost that Fisher Investments may agree to pay will depend on the actual surrender cost or exit/liquidation charge of the product (excluding pro-rated rider fees, market value adjustments, and other taxes) and the value of the total portfolio transferred for management by Fisher Investments. Any portfolio already managed by Fisher Investments will be excluded for the purpose of determining the maximum surrender cost to be paid.
Any surrender cost that Fisher Investments may agree to pay will generally be reimbursed in the form of a credit to the Fisher Investments quarterly investment advisory fee. Installments for ERISA plan assets will only be credited to the Fisher Investments’ managed account that contains the ERISA plan assets. Installments are subject to adjustment based on withdrawals of assets from Fisher Investments’ management.
All payment obligations will immediately cease if the client relationship with Fisher Investments or the account receiving payment is terminated for any reason before the end of the payment period and no further installments will be paid. Payment periods can last over ten calendar quarters or longer.
Risks: there is no guarantee any proceeds from any product mentioned above managed by Fisher Investments will achieve any specified level of performance, or that performance will be any higher than what could be achieved within the product. Investing in securities involves the risk of loss. Past performance is no guarantee of future returns.
The contents of this site should not be construed as tax advice. Please contact your tax professional.