What the F**k Are Annuities?
Summary: Annuities are not exactly transparent, and neither are the people selling them. They are almost always a terrible investment, and when we explain what the f**k are Annuities, you will understand why and stay far away from them.<br> There is so much misleading information out there for Annuities in no small part because the financial incentives for selling Annuities is very high. We will take an unbiased look at them. We’ve never accepted a dollar from an annuity company, and there probably won’t be any beating down our door after this!<br> <br> What the F**k are Annuities<br> Annuities are a financial product, typically backed by insurance companies and sold by investment banks that guarantee a fixed stream of payments primarily used as an income stream in retirement.<br> This income is taxable just like ordinary income you earn from your job and subject to the same tax rules. You fund the Annuity with your own money either through a lump sum or monthly contributions.<br> <br> Your eventual payout depends on your contributions, the type of annuity you choose and its term.<br> <br> <br> <br> <br> They are often compared to pensions or even directly labeled as “personal pension plans.” You pay a certain amount of money during the accumulation phase that is later paid out to you as fixed payments during the annuitization phase.<br> Tax Deferred<br> Annuities provide tax-deferred gains that are not all that different from a 401k. However, it’s important to note that they are not <a href="https://www.listenmoneymatters.com/blooom-401k/">401ks</a>. <a href="https://www.investor.gov/system/files/publications/documents/english/Variable%20Annuities.pdf">Investor.gov</a> recommends maxing a 401k and <a href="https://www.listenmoneymatters.com/should-i-open-a-roth-ira/">IRA</a> before even considering an annuity for reasons we will get into.<br> A fixed Annuity has a set, guaranteed interest rate, and a guaranteed payout. A variable Annuity depends mostly on the performance of its underlying investments so the payouts can vary from month to month.<br> <br> Often the most popular annuity is described as a “fixed income” style product with quoted returns as high as 6%. This is disingenuous at best and generally a flat-out lie. Technically you would have to live infinitely for the <a href="https://www.forbes.com/sites/davidmarotta/2012/08/27/the-false-promises-of-annuities-and-annuity-calculators/#49c2206e529d">return</a> to hit the sticker rate.<br> <br> “Buying an annuity begins with the immediate loss of 100% of your original investment. So for the first 15 years, the annuity company is simply giving you back your original purchase price. The way most salespeople describe thinking about the annuity discourages investors from realizing that their original money is gone forever. They do this by referring to it as an investment. I would not call it an investment because after you purchase an annuity, your principal no longer has any value.”<br> <br> <br> <br> Why Are We Telling You This?<br> <br> If we don’t recommend Annuities, why are we even talking about them? Because eventually, someone is going to pitch them to you. Andrew and Laura got the hard sell by an <a href="https://www.listenmoneymatters.com/go/uber-driver/">Uber</a> driver on the way home from the airport!<br> And it’s not surprising Annuities are pitched so hard. The commission on them can be as high as 10%! There are even Annuity startups popping up, and they can be very seductive, so it’s important to know just what you are being sold.<br> Fear is what you are being sold. It’s often a big part of an Annuities sales pitch although it can be so subtle, you don’t realize it. People can be fearful of the stock market, especially during a shaky economy. Those selling Annuities play on this fear and pitch them as a safe alternative.<br>
