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Why Do the Pundits Hate Fixed Annuities?

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This is our third installment of our educational video series on why the pundits hate annuities.

(Related: Why Do Pundits Hate Indexed Annuities?)

Of course, if you sell annuities, or have even thought of selling annuities, you know that the value of a variable annuity can go up or down with their underlying investment funds.

Indexed annuities introduce some guarantees, but still participate indirectly in investment market returns. Over the long run, especially during the periods of low interest rates, variable annuities and indexed annuities will generally outperform fixed annuities. And certainly the same can be said for mutual funds and other investments, even considering some of the tax benefits of annuities.

That may be why the pundits hate fixed annuities, but that is really comparing apples to oranges (or apples to broccoli if you saw our first video). As we show newcomers to annuities in our video, fixed annuities are for people that do not want to participate in the investment market: those who are the most risk averse in the risk/reward continuum. The more logical competitor to fixed annuities is bank certificates of deposit.

As a final note, we want to emphasize, for potential annuity users and others, one benefit that fixed annuities offer that, to our knowledge, no non-annuity can: A guaranteed interest rate for life. Your clients and prospects may think that this is not such a great benefit given that most current fixed annuities offer guarantees of 1% to 2%.

But who knows what the future holds? There are many people today who own annuities purchased a few years ago that provide 3%, 4% or higher lifetime interest guarantees. Those guarantees might not have seemed like much back then, but those fixed annuity owners are now sitting on a valuable lifetime interest rate compared to today’s low interest rates.

Our next two annuity video articles will get to what we see as the meat of all the controversy: It’s not the annuity products the pundits actually hate, it’s the annuity commissions! Or perhaps more accurately, commissions are what some pundits want everyone to hate. But does that hatred actually make any sense?

In the meantime, tell us what you think in the comments and give us any ideas on topics for future videos.

— Read Why Do the Pundits Hate Annuities?on ThinkAdvisor.