Annuity Analysis & Review

If you are considering an annuity, make sure you have all the information to make an informed decision. Annuities are sold by commissioned sales agents using tactics that are often questionable and even predatory. While annuities can be beneficial for very specific circumstances, they are less-than optimal investments and most individuals are likely to benefit more from a well-diversified portfolio of stocks and bonds. Federal and state regulators have repeatedly called annuity sales practices into question, especially for the misleading way in which they are presented.

Receive a Free Analysis of Your Annuity Contract

To help combat this lack of consumer information, Purposeful Finance offers a free annuity review so you can see how the annuity contract you are considering compares to the returns you might get in the stock market. We’ll use the information from the annuity company to compare how your investment might otherwise do in the stock market using their assumptions. Then, you’ll be better prepared to make an informed decision on which is right for you.

Help us Help more people

If you have already signed the contract, you have a limited amount of time to cancel the contract and get all of your money back. We suggest cancelling the contract immediately to get your money back so you have time to review the information. If you determine the annuity is the right decision for you, you can always re-invest in the annuity contract.

Annuity Details

In order to provide this service for free, you will need to review your annuity contract and provide us with information from the annuity company’s paperwork. A manual review of the annuity contract is also available for a fee.

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This may be known as the index cap or the return cap in the contract.

Learn More About Annuities

THE PROS OF AN ANNUITY

With a fixed annuity, the fact the insurance company is taking on the investment risk is a big plus, and an annuity might be a good choice for a portion of your retirement funds to provide you with your basic living expenses. Realize that Social Security provides the same benefit, so an annuity may not be necessary to provide for your basic living needs. If you are highly risk averse, annuitizing a small portion of your portfolio to supplement Social Security for basic living expenses (like food and medicine) could be a good idea. 

the cons of Annuities

  1. Annuities have very low rates of return built into them, and over long time periods generally will pay out less retirement income compared to a balanced portfolio of stocks and bonds.

  2. Annuities also have very high costs built into them, further reducing the payout relative to the potential payout of a well-managed portfolio of stocks and bonds.

  3. Annuities don't allow you to easily change investments once you begin the contract. Withdrawal fees are significant and can last more than a decade. 

  4. The tax advantages of an annuity are over-sold and are significantly less than the tax advantages of an IRA or 401(k) plan. Until you max out your retirement contribution limits, you are always better off tax-wise with an IRA or 401(k) plan.

  5. Internal fees with annuities are very high, and hidden up-front commissions may be taken from your initial invested principle.

  6. Retirement income from most annuities aren't adjusted for inflation, so what seems like plenty of money at the beginning of your retirement will likely leave you in financial hardship toward your later retirement years. There are inflation adjusted annuities but you'll see a significant reduction in the monthly income they pay you (as much as a third or greater reduction).

  7. Insurance companies can and do go out of business, and if the insurance company you chose goes out of business your annuity income will likely be greatly reduced or be eliminated altogether.

  8. Annuity sales practices can be very predatory, and a bad annuity advisor (sales rep) can easily lead you to believe something which isn't true. Annuity sales practices have often been identified by regulators as problematic and anti-consumer. And these annuity sales practices are one of the main reasons the Department of Labor attempted to implement their fiduciary rule.

Beware the Pitch

As you are making this decision, you are likely talking with a 'financial advisor' who sells annuities. Realize these advisors are really commissioned product sales reps and you are getting advice with a high conflict of interest. You potentially will get a very well-rehearsed sales pitch disguised as advice, and you may not be presented with the downsides of the investment nor the alternatives.

If you are exploring an annuity, make sure to get a second opinion from a fee-only and fiduciary financial advisor before you make this decision. We do this analysis for free because of the prevalence of bad annuity sales practices. Fiduciary advisors have a legal obligation to serve their client's best interests (most advisors don't) and the fee-only part means they don't earn extra money from kickbacks or commissions if you follow their advice.