Bonds Over Fixed Indexed Annuities? You must be Joking!

By Robert Scott, The Annuity Post

Frequently, I have a client who approaches me with the desire to buy an annuity.  My job to sell an annuity is generally much easier when the client comes to their own understanding of why they’re considering a re-allocation of their important retirement monies.  I commend them on their decision but I like to ask what are their reasons for making a move from their current risk strategy to safe fixed indexed annuities.  The response is usually they’re tired of risk, want safe growth, and the guarantees that are common with annuities.

 During the process, clients might strike up a conversation with their brokers (appropriate name because they often make you broker) about their impending move.  The broker, eager to protect his considerable income tries to conserve his business by trying to convince the client to look at bonds because they too have been traditionally safe.  There’s a fallacy to that statement.  While bonds are traditionally safer than say equities, bonds of any type (municipal/corporate/foreign) are never guaranteed.  Bonds can and do fail and people lose their money too.  Hardly a prospect that seems wise for retirement monies that don’t provide you the time to regain once lost.  Do you remember Enron, GM, and Orange County California?  All failed bonds!  Then the client rationalizes that the bonds they’re looking at pay a dividend.  That’s fine, but again, like the bond, the dividend is not guaranteed.  Another point to consider about foreign municipal bonds is they are also subject to currency fluctuations so the dividend you may receive can change radically depending on the economic conditions of the country from which they represent.

No credible advisor would tell you bonds are bad.  That would be untrue.  Nevertheless, the fact is that fixed indexed annuities provide the safest alternative available for your retirement nest egg.

I’m going to give you a challenge.  Try to Google a single incident of someone losing his or her money in a fixed indexed annuity!  Guess what?  It has never happened…. EVER!  This raw fact serves as a testament of the financial strength of insurance companies and the safety of fixed indexed annuities.  The current vogue of the best FIA annuities has an income rider provision, which enables you to receive a guaranteed income for life!  They often have enhanced death benefits for heirs, and also provide flexibility that will enable you to pull cash from your annuity if you need or want it.  The growth of the income account is astounding and even in today’s low interest environment; companies are offering as much as 7% compounded growth and 10% simple growth.  That’s after you’ve received a premium bonus too!

This isn’t a recommendation to now start liquidating all of your stocks, bonds, and mutual funds, and putting them all into fixed indexed annuities!  But, annuities certainly deserve to be part of your financial portfolio just as other financial products are.  What percentage you allocate will depend on your financial goals and needs.

Tagged with: , ,
Posted in Opinion