The Illogic of Annuity Trashers

The Illogic of Annuity Trashers

April 29, 2019 – Articles, commercials and opinions of those who trash annuities shouldn’t bother me as much they do.

But seeing the general public constantly bombarded with misleading information on the issue, I can’t help wondering how many people are swayed by them to their detriment.

And feeling angry about the disingenuous and self-serving prejudice.

People aren’t always conscious of it, but they often base their financial decisions on emotion rather than logic. Fearmongers who play to this behavioral science truism can sway the odds in their favor when it comes to issuing financial advice.

And the slant is very transparent when you take the time to logically dissect their rationale for advising against annuities.

For instance, allow me to pick apart some of the more obvious biases in “Why annuities are a bad idea for almost everyone” from the August 18 issue of MarketWatch (free subscription may be required):

Fallacy No. 1: The title itself. – Blanket, unsupported generalizations should always be viewed with skepticism. (Yes, I’m aware of the irony of my statement) Financial advisers who form such conclusions without first trying to understand the client’s needs, wants, and risk tolerances violate one of their primary ethical responsibilities to them;

Fallacy No. 2: “In some annuities, if you die before you’ve received all of your money back, too bad for you. The insurance company keeps the money.” – As if investing in the stock market is a sure thing. If given a do-over, I’m guessing the folks who invested in Enron at $90.75 a share would take almost any annuity being offered at the time;

Fallacy No. 3: “Annuities pay extremely high commissions — often 7% or higher of the total amount. So if a client was sold a $200,000 annuity, the salesperson might take home $14,000 up front.” – Another misleading red herring. Of the more than 3,500 annuity transactions I’ve successfully placed in my career, all but a few paid me more than 2% to 4%. At this rate, the average financial adviser who charges for assets under management makes much more (with your money at risk, by the way, not theirs) after a few years of managing your account depending on how they’re paid;

Fallacy No. 4: “If you invested in 2000, near the top of the dot-com bubble and sold in 2009, near the bottom of the Great Recession, you were down 9%.” – Is this guy actually arguing that losing money is better than an annuity that doesn’t lose money? Hubris personified.

Fallacy No. 5: – A media/marketing organization passing off incendiary opinion as sound advice. According to its website, the author’s employer has 157,000 subscribers. Assuming $149 per newsletter subscription, the company makes $23.3 million a year not counting books sales which likely bring in additional attractive income.

No financial adviser worth their salt would ever advise anyone that annuities are a universally bad idea. Similarly, no annuity advocate would ever advise anyone that market investing is a universally bad idea.

As a practical matter, many clients find themselves well-served by adopting a blended approach to meeting their future income needs. True, some will be better off with a higher or lower percentage of their retirement or injury settlement funds dedicated to an annuity versus managed funds.

But that’s a decision that shouldn’t be made based in an article filled with half-truths and misinformation. Further, taking into consideration the tax-free or tax-deferred nature of many structured settlement annuities, only the uninitiated would advise against considering them when given the opportunity.

Image courtesy of Stuart Miles at


Finn Financial Group