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How do immediate annuity companies make money from the investor? Isn’t it better to save your income instead?

19 Feb

Isn’t it better to save your income and invest in low risk investments instead of investng in annuities?

 
2 Comments

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  1. Gator714

    February 19, 2010 at 12:58 pm

    Annuities serve a purpose for a very small percentage of the investing community. Unfortunately for the consumer, the commissions that they generate to the broker relative to mutual funds and other investments are seriously out of line. The result of that is the percentage of people who are sold annuities is dramatically out of proportion with the people who need them. To give you an example of this disparity, I worked for a firm where if you put $100k of a clients money into mutual funds the commission would be about $400. If you put that same amount into an annuity the comission would be almost $2000. Annuity companies don’t mind paying out a big commission because once money goes into an annuity, it is almost always there for at least 10 years. This is true because most of them have long surrender periods that you have to keep your money in the investment to avoid surrender hefty surrender penalties. I’ve seen surrender periods as long as 10 years. The immediate annuity is a slightly different beast. The company loves these even more because once a client puts their money into an immediate annuity they irrevocably give up control of the dollars in exchange of an annuity income. I can’t think of any situation where this is appropriate for a consumer. That’s how I feel about the subject. I’m sure that some insurance salesman will respond differently. Good luck

     

  2. Susan C

    February 19, 2010 at 1:18 pm

    Wow. Someone is a little bitter about Annuities. Correct, the commission on Annuities is higher, because that is the only money ever paid to the Agent selling it. Mutual funds and stocks continue to pay money to the broker everytime they buy, sell, or re-invest. Fixed Annuities are great for a large population of investors. Especially Seniors and Baby Boomers who like the safety and Guarantee of an account that they don’t necessarily get to on a annual basis. Also, single folks can Use Annuities to avoid probate and pass onto their children. However, an Annuity has to be the right investment for your particular situation. 82% of all folks who are in an Annuity never access this money. Again, if they were put into an Annuity for the right reasons. The immediate annuity, I do not recommend for most folks. It locks you into a low payout interest rate, and right now is not the time in the market to do that. Immediate Annuity means that you are getting a monthly, quarterly, or annual payout from your own money. The insurance company my get 5%, and they payout 3% or 4%. That is how they make their money. Much like a bank, they loan out your money at 6.6% and give you 2% in a CD.

    Annuities are for people who have an investment that they are not pleased with and don’t like the risk involved with the stock market, mutual funds, etc. They want a better return than the banks offer, and don’t want to pay the huge fees to a broker to review their statement once a quarter as they lose their life savings. You can access 10% of your Annuity with most companies, and they can provide a monthly income for the rest of your life when you retire. That is what most pensions are put into when you retire and your company pays you your retirement.

    Certainly, educate yourself on Annuities, but they can be a great tool for the right person. Do not invest in Variable Annuities if you are not willing to take the risk of losing your money, and paying penalties when you get mad and take the money out. Unfortunately people think that Annuity is only one kind. There are several kinds that pay very well. What you need to look into is a Single Premium Tax Deferred Fixed Annuity. Not an Immediate Annuity.

    Hope that sheds some light on the good vs. the bad Annuities