I ? Annuities

By Jack Bobo

Annuities seem to be much in the news these days. Our local paper had an extensive article regarding variable annuities this past Sunday, and several financial publications also have featured them in recent weeks. I suppose all the current discussion about Social Security and retirement generally has sparked this interest.

It has been a long time since I sold an annuity and much has changed in the interim. I have noticed though that much of the discussion regarding annuities has been more about their use as a means of tax-free accumulation than as a tool for lifetime distribution. I am not familiar with some of the new variable products that have come upon the scene recently and so I do not feel qualified to discuss their merits–and that is not the purpose of this article. My only purpose is to relate my own experience and why it is I love annuities. I will leave it to others to pass judgment on the new products.

The first annuity that I sold was in 1958 to a nurse anesthesiologist in her late 40s. It was an immediate annuity with 10 years period certain. In discussing the policy with her, she stated that she recently had come into the money she expected to use in purchasing the annuity and her primary goals were income and safety. She further stated that she had enough stress at her job and did not wish to have the additional anxiety of managing her money. Her exact words were, ‘I do not want to pick up the morning paper to find out whether I am worth more or have lost money. It is just not my temperament.’ Two years later she called me and said she wanted another annuity, which I was happy to write. The last I heard, she was still living and well into her 90s.

The second annuity I sold was to my aunt, who had never married and was retiring at age 55 because her company was moving out of state. Her concern also was safety and a goal of lifetime income. Despite the fact that she was never in robust health, she collected on the annuity every month until she died at age 91. Again, the policy was an immediate fixed annuity with 10 years certain.

The first variable annuity that I sold was in 1967 and at the time, I explained thoroughly the risks and rewards associated with both fixed and variable annuities. The client opted for variable as she was in her early 50s and felt long term that would be best. In 1968 the stock market tanked and her annuity dropped significantly. I lost touch with her about 30 years ago, but at that time, the variable income was still far less than what a fixed annuity would have provided. She was not bitter–she acknowledged that she had made the choice.

The second variable annuity I sold was to a retiring employer of a local bank where my partner and I were asked to counsel the retirees regarding options for funds in the profit-sharing plan. The day after I delivered her policy, she returned to my office bleary eyed and obviously a nervous wreck. She said she had not slept a wink and realized she could not live with the uncertainty of variable income. Fortunately we were able to rescind the policy and put the money into a fixed annuity. She was then able to relax and sleep better.

In the period that we counseled with the bank employees not all opted for an annuity, but those who did all chose fixed over variable.

As an accumulation device for younger people, a variable annuity with sufficient time probably makes a lot of sense. However, as a means of spreading income over the balance of a person’s life, my own experience has been that people prefer the guarantee of a fixed annuity. Perhaps some of the newer products may be able to alleviate some of the fears retirees have.

In late 1993 it came time for me to decide. At age 69 I was retiring and had to chart a financial course for my wife and me to follow. I began to sense the same feelings my policyholders had expressed over the years. It was a time when taking lump sums from pension and 401(k) plans was in vogue. There was widespread sentiment that individuals could do better with their money than the insurance company–a sentiment encouraged by many financial advisors. However, I resisted the temptation and opted for joint and survivor fixed annuities and have never regretted the decision.

It is worth noting that some of the people I know who took a lump sum from their pension plans have in recent years returned to the workforce.

Why do I love annuities? My regular income that I count on gives me the freedom to invest other assets without worry and stress. We have made money on stocks and real estate but only because we had guaranteed income that enabled us to take risks elsewhere.

Why do I love annuities? Each month our checking account fills up and we can spend freely knowing that the account will refill next month.

Why do I love annuities? People who have annuity income tend to live longer than those who don’t. That is real serendipity–and I hope it works for my wife and me.

Why do I love annuities? My regular income that I count on gives me the freedom to invest other assets without worry and stress.”