I had a email conservation today with an old friend who just purchased an annuity. We focus on index investing here at Wiser Wealth, and our clients are annuity free, meaning we do not push them and they know not to even ask. So, I thought that I would elaborate more on why most annuities are great for the salesman and death for the purchaser. Looking for some back up to my thoughts on annuities I stumbled on a great article on this subject. Instead of quoting Dave Ramsey or Clark Howard, I will send you to experlaw.com, where Mason Dinehart, III does a excellent job of describing the annuity and what to look out for. I don’t know that I could write a more compelling case, so I will let him do it for me.
I will add that he refers to purchasing a tax efficient mutual fund. When he writes about this, block that term out and replace it with an Exchange Traded Fund. ETFs are more tax efficient than any tax efficient mutual fund. Except for that error, I will back him up on the thesis of his report.
For our advanced readers, my friend Russ Thornton brought a new article to my attention. This article walks you through the math of the guarantees of an annuity. I would be willing to bet the salesman selling this product doesn’t even understand this concept! Click HERE for the article.
“To conclude: It’s time to acknowledge that a 7 percent guarantee is really closer to a 2 percent investment return, a 6 percent guarantee to a paltry 1 percent return.”