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Annuities…Good or Evil?

Annuities…Good or Evil?

Whenever I attend an industry event or meeting, inevitably there will be a panel of some sort debating whether a specific financial product or strategy is good or evil. It is actually quite comical to watch two otherwise well-educated people confidently and unequivocally defend completely opposite points of view. One will insist that a product is terrible for consumers while the other blindly asserts that the same product is the greatest thing in the marketplace. How can two professionals who have equal access to information see the same product through such different lenses? One product that often sparks these debates is annuities. Some “experts” will try to tell you that annuities are evil. Really?

Saying any one financial product is good or bad is the equivalent of saying that any one medicine is good or bad. A good medicine given to the wrong person for the wrong symptoms can be dangerous, much like giving someone the wrong financial product to solve a financial issue can be dangerous. No product is inherently good or bad. A financial product is nothing more than a vehicle that can help a client reach a destination that is meaningful to them. When used appropriately, annuities can be a great way for clients to protect their principal while using that principal for an income stream.

Recently I listened to a financial advisor who flatly declared that “all annuities are bad.” When I asked him if any of his clients were retirees who had lost more than 30% of their assets in the 2008–2009 financial crisis, he replied, “Yes, but everybody did.” Do you think that those people would have rejected an annuity earning 3% during that period of time while not losing any principal? Of course not.

As an industry we have to quit labeling products as good or bad and begin to see each client’s unique situation for what it is. We have to objectively analyze their needs so we can determine which financial products will help them sleep well at night. For some, these products may include life insurance or annuities, even if these categories of financial products have been labeled “bad” by some people.

Doctors don’t walk into the examining room, greet you, and immediately prescribe medicine. They take time to examine you, ask you questions, find out about your symptoms, and carefully assess what may be the issue. Then they diagnose your problem and prescribe the appropriate medicine to treat the problem. Why should financial professionals be any different? Don’t rule out any financial product until you have taken the time to understand it thoroughly enough to know what problems it was designed to solve.