http://www.whyisfinancialplanningimportant.net/financial-planning-important/pros-and-cons-of-having-annuities-in-your-diversified-portfolio/ FIM Group Fee Only Wealth Management | Traverse City, MI Sun, 03 Apr 2011 19:54:34 +0000 hourly 1 http://wordpress.org/?v=abc http://www.whyisfinancialplanningimportant.net/financial-planning-important/pros-and-cons-of-having-annuities-in-your-diversified-portfolio/comment-page-1/#comment-2090 James Shurewood Thu, 07 Oct 2010 14:14:19 +0000 http://www.whyisfinancialplanningimportant.net/?p=272#comment-2090 I think you do a decent job of articulating some of the pros and cons of annuity contracts. Having said that, you fall into the trap that most other "objective" analysis hits, which is comparing apples to oranges and concluding the cheaper apple is best. I challenge you to do some analysis without preconceived conclusions. Run whatever hypothetical you want with a 70% stock 30% bond mix over the last 10 years. Then run the same hypothetical using any of the ratchet/step-up variable annuity companies that have a decent income benefit. At the end of 10 years, will the mutual fund portfolio have a higher value? Likely. Will the mutual fund owner have paid less in fees. Very likely. Will the mutual fund owner have the same guaranteed lifetime income that the annuity holder will enjoy? Very unlikely. Many people will gladly pay an additional cost for a product that helps them assuage one of their greatest fears, that of running out of money. No mutual fund on the planet, regardless of fees, can do that, and thus the unfair comparison. P.S. There are also annuities out there like MetLife that offer a full return of premium in addition to the income the client takes over their lifetime. If a client invests $200,000 at age 70, takes out $150,000 in income over the next 15 years, and then dies with at least $2,000 in the contract, their spouse or kids get the full $200,000 BACK to spend again, with no deduction for fees. What mutual fund does that? Not right for everyone in every situation, but not wrong for everyone, either. Thanks. I think you do a decent job of articulating some of the pros and cons of annuity contracts. Having said that, you fall into the trap that most other “objective” analysis hits, which is comparing apples to oranges and concluding the cheaper apple is best. I challenge you to do some analysis without preconceived conclusions. Run whatever hypothetical you want with a 70% stock 30% bond mix over the last 10 years. Then run the same hypothetical using any of the ratchet/step-up variable annuity companies that have a decent income benefit. At the end of 10 years, will the mutual fund portfolio have a higher value? Likely. Will the mutual fund owner have paid less in fees. Very likely. Will the mutual fund owner have the same guaranteed lifetime income that the annuity holder will enjoy? Very unlikely. Many people will gladly pay an additional cost for a product that helps them assuage one of their greatest fears, that of running out of money. No mutual fund on the planet, regardless of fees, can do that, and thus the unfair comparison.
P.S. There are also annuities out there like MetLife that offer a full return of premium in addition to the income the client takes over their lifetime. If a client invests $200,000 at age 70, takes out $150,000 in income over the next 15 years, and then dies with at least $2,000 in the contract, their spouse or kids get the full $200,000 BACK to spend again, with no deduction for fees. What mutual fund does that? Not right for everyone in every situation, but not wrong for everyone, either. Thanks.

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