Barbservations from a Seminar about Annuities

 

Every once in a while, I attend a free financial seminar in my neighborhood. Going to these meetings provides content for blog posts and insights into the financial concerns and misperceptions of older adults. I then incorporate this information into my classes. Occasionally, I also get a free meal.

Recently, I attended a meal-free seminar about annuities. Below are some Barbservations:

 

Long Introduction- Fully one-third (20 minutes) of the 60-minute program was a lengthy description of the sponsoring company and its key staff.

 

Helpful Handout- The speaker distributed a very useful “one-stop” tax summary document, similar to this one, that contains all the 2026 numbers relating to income taxes and Social Security.

 

Business Model- The speakers earn income by charging a fee for assets under management (AUM) and mentioned a 1.2% base AUM fee with a lower percentage charged for higher wealth tiers.

 

Poor Educational Presentation- There were no PowerPoint slides. Instead, the speaker feverishly wrote numbers on newsprint paper and talked very quickly. In short, the talk was hard to follow.

 

I teach a class, myself, about annuities so it was difficult not to “fact-check” the presentation. Below were some “nuggets" that stood out to me as correct and useful information:

 

Annuities are a Tool- Annuities are neither good nor bad and they are not right for everyone. Also, they are both simple (give an insurance company money in exchange for a future stream of income) and complex (complicated features). Every contract is different, making “apples-to-apples comparisons difficulty.

 

Fixed Annuity Features- Fixed annuities are like CDs, but tax-deferred. When money is withdrawn, it is taxed as regular income. Initial returns are locked in for a certain period of time (e.g., 5, 7, or 10 years) and then fluctuate with market conditions. Look for a decent “floor” for downside protection.

 

Government Backing- There is no federal government insurance like FDIC backing annuities. Instead, there are state-administered guaranteed associations. In Florida, annuities are insured by the Florida Life & Health Insurance Guaranty Association (FLAHIGA), which covers up to $250,000 per owner per member company.

 

Indexed Annuity Caps- Annuities tied to an equity market index have caps, which are essentially fees because they reduce investment earnings. The example that was given was, if 2% is the maximum you can earn on an index annuity and the market returned 12%, the “fee” is 10%.

Risk-Free Investing- There is no such thing as a risk-free investment. All investments have some type of risk. When communicating with a financial advisor about risk, don’t say “I don’t want any risk.” Instead, say “I want as little risk as possible” and acknowledge that risk exists.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.