Let me start this article by clarifying that I am not saying to never bring up the subject of annuities with these 4 people. A statement like that would be a sure indicator that there is something to hide, or that I am worried they have secret knowledge that can expose the annuity industry and I would lose out on business. What I am saying is, if you’re going to bring these 4 people into the conversation, then you need an expert that can answer their questions and correct any falsities, or biases, they may have about annuities and how they should apply to your personal financial situation.
I have mentioned before that there are approximately 200 annuity companies in the marketplace. And each company has anywhere from 5-20 different annuities available. So, on the low end, that is over 1,000 different annuities! Therefore, you want to have a Safe-Money Expert be a part of the conversation. There are too many different products to know and understand for someone that does not specialize exclusively in safe-money products, such as annuities, to make recommendations. It would be no different than if I, a Safe-Money Expert, attempted to give you legal or tax advice. I am not an expert, so you should not take my advice about taxes or legal issues. Always clarify information with an expert. So who are these 4 people, and should you not take their advice?
- Your Friends — Out of the 4 people, these are the ones who are probably the most sincere. I believe your friends are always well-meaning, but sometimes ignorant to the truth, or possibly have a bad taste in their mouth from a personal experience.
It’s not uncommon for me to hear, “I talked to my friend, and he hates annuities. He got screwed over by his agent (or the annuity company)”.
I hate hearing that because most of the time it was a good idea for that person to have an annuity, and they just had a bad agent. And yes, there are some bad agents out there. Just as with any profession. But, when I ask what type of annuity their friend had, I normally hear crickets in response. That’s because there are multiple types of annuities, and you need to have the appropriate one recommended to you to get maximum results for your personal situation.
Just lumping all annuities together not only does a disservice to the industry, but it can create a disservice by preventing you from making the decision to protect your money. Money that you have spent a lifetime working for. Don’t let a well-meaning friend derail you from protecting your money without getting all of the details with regard to their experience.
- Your CPA – This is a profession whose rules change constantly. They should be so busy just keeping up with all the changes in the tax code that they shouldn’t even have time to sell other services. But some do. There are a couple of reasons that a CPA would tell you to avoid an annuity. They either don’t understand them completely or they have one they want to sell you.
There are annuities specifically designed just for tax benefits. For instance, two that come to mind are a Medicaid spend-down annuity, or annuities designed for Non-Spousal Inherited IRA’s. There is only one annuity company, at the time of this writing, that accepts money from Non-Spousal Inherited IRA’s. I bet your CPA doesn’t know who it is…
- Your Financial Advisor – There are a plethora of reasons that this could be a slippery slope. To start, just as with the tax code, markets change all the time. Your advisor should be focused on growing and protecting your money from any major downturns. Just like the CPA example of how I know a lot about taxes, I know a lot about stocks, bonds, and Mutual Funds. But I am not an expert, and you should not take my advice regarding those subjects. Even if your financial planner sells annuities, he will be limited to what he has access to and will not be up to date on the most efficient products available.
Also, your financial planner has a vested interest in you not protecting your money in an annuity. And it all comes down to how they get paid. The majority, not all, but the vast majority of financial advisors get paid a percentage on A.U.M., or Assets Under Management. They take a percentage of your money every quarter, whether they make you money or lose your money, and that’s how they earn their income. Obviously, the more money you have under their management in risk-based products, the more money they make off of you. So, what benefit would come to them by recommending a product or a strategy that doesn’t allow them to pick your pocket for the rest of your life? There is no benefit for them if you move your money into an annuity.
Annuity agents get paid a one-time commission from the annuity company’s general fund. Not a single dollar comes out of your pocket. If you put $100,000 into an annuity, you start earning interest on the $100,000 from day one. I have heard so many misrepresentations, and downright lies, about annuities from financial planners that I literally started keeping a list of them to give to my clients. That way they know what questions to ask when they hear one of these falsities.
- Your Estate-Planning Attorney — This is probably the one person who will know the most about annuities if they are true estate planning professionals. However, just like the CPA and Financial Planner, they have a lot of information to retain and rules to keep up with. And they may even have annuities they sell themselves. However, there are specifically designed annuities to help transfer wealth in a very tax-efficient manner. But the attorney may not know about that specific product because it is new, or they have never dealt with a specific company.
Those are the 4 people that you should take great caution in taking advice from about annuities. Just to clarify, I am not saying to never talk to these 4 people about your annuity decision. I am saying to bring an annuity expert into the conversation to help squash any false information that someone in the above position may give you. I am happy to talk with anyone in your planning circle to help bring the truth about annuities and peace of mind.
With Atlas Financial Strategies you will have access to an expert in the world of annuities. And because I am a non-captive agent, I can access all of the companies and annuities that are offered in the marketplace. If you have questions in any of the areas that I discussed above, or you would like to see how to get 20% More Spendable Income in Retirement, click the “Schedule A Call” button, or dial me directly at 636.926.6500!
All the best,
Marty