Ok, I’m not a fan of Wall Street or the Banks. I’m also not in love with Insurance Companies. Now that all that is out in the open here are some things to think about.
Annuities. There is a huge uproar by stock brokers and bankers about fixed and indexed annuities that are sold primarily by insurance agents. Bringing about the SEC deciding to regulate these savings plans the same way the are supposed to regulate the investment industries.
I find it really interesting that the only part of the financial industry that is being brought under new rules is the one part that wasn’t broken.
Why is this being done? Well annuities are savings plans. They are a contract between the client and the insurance company where in the client buys an annuity for x amount of money and the contract is for from 2 yrs to 15 years. The longer you agree to tie up your money in a contract the higher the interest rate you are paid. Some of these contracts are for a fixed % rate. Some are indexed to the gains in the S & P 500. The company shares the gains they make on the investments they made with your money. Usually this is capped at around 8%, so in a bad year you would get a minimum guaranteed rate of 3 or 4%. In a good year you’d get 7 or 8%. But the key is this past year you would not have lost a dime. Zip, nada, nothing. You may not have made much but a lot of people would have been ecstatic with a 3% gain this last year.
So why does this need to be treated like a security instead of a savings plan? Well, first of all there are always some knuckle heads that will go out to an 80 yr old and sell them a 15 year annuity, which makes no sense. So the states and insurance companies have put suitability studies in place for every annuity sold. But that wasn’t good enough for the Bankers or Stock Brokers. You say why? Well because people were pulling there money out of CD’s which the Bankers don’t like. They were taking there money out of money market accts, and the were taking there money out of mutual funds. They were taking there money that was being “managed” and putting it in annuities. They were taking accounts that were being decimated in “the market” and money that they were earning 1 ½% to 2 ½% and putting it in a savings plan where they could do better with no risk, and defer the taxes down the road.
The Bankers and Stock Brokers are in direct competition with the insurance companies for the consumer’s money, that’s why they have created this uproar.
Now the big complaint is that insurance agents earn from 3 to 8% commission on the amount of money put in a annuity. They forget that this is a one time commission. Where the Bankers and Stock Brokers earn repeated commissions and fees for managing the accounts they control. They also like to sell their customers Variable Annuities which are investments. They are directly tied to the stocks they are invested in and if the market goes down you lose. You also get to pay a % of your acct to the broker or bank for them to manage your acct.
The bankers and brokers have always been able to sell Fixed or Indexed Annuities (savings plans) but they haven’t. Not because they wouldn’t be appropriate for some of their customers money, but because they don’t make enough money selling these products.
Are annuities for everyone in every situation, NO. But for your “safe money” the money you can’t afford to lose it’s a wise choice. Should you put all your money in a 15 year annuity, not if your over 50 years old. But to spread your safe money over 3, 5, 7 and 10 yr contacts makes sense. Just like it makes sense to keep emergency funds in an acct that you can get to if you need it.
Annuities today are not the same as they were 5 years ago, and they don’t resemble annuity contracts that were written 10 or 15 yrs ago.
Today there are nursing home and terminal illness riders that release the money without penalty if you need it for health care.
I’m sorry for rambling on about this, but I think you and everyone needs to know that the forces of evil and greed are thinking long term in there quest to control our money.