Response: I recently wrote a response to a question that someone posed to me with regards to getting a second opinion on their annuity, to which I responded that it's always a good idea to get a second opinion about anything if you feel you are having a lopsided conversation. Meaning, if you are getting all the good, but feel as though the negative aspects are being left out... you might want to take some more time before making a decision. One blog reader posted a comment that essentially said that all annuities are bad, only snakes sell them and gave his interpretation on how an indexed annuity works and the advice that he offered his family members.
"Steer clear of annuities. The insurance company caps your return, invests your money in the markets and keeps all above the guaranteed cap. Example, they guarantee 4% a year to the annuity holder on $100,000. Then, they invest the entire $100,000 in stocks of their choosing. Imagine a year like 2013 when the stock market averaged returns of about 34%. In that year, the insurance company keeps 30% and gives the annuity holder their 4%... What a great deal. It is a terrible product and only snakes sell them. If you ever want out, it takes fierce phone calls and about two to three months to get YOUR money back from them. I know because I had to help relatives get out".
At first I thought it was comical how an "armchair" expert could have things so absolutely wrong and then I became concerned. I have conversations weekly with people who are clearly stressed over either their purchase of an annuity or own one or a handful of them and learn something about them that they didn't know when I provide them with a detailed Annuity Report Card. My point in this response is that seeking advice from someone that you know who may be very smart... may not be the best choice for your source of information. These are confusing, complex investment vehicles that and there are a lot of bad ones out there as well as bad people selling them. However, making an emotional decision about what to do from someone who doesn't understand what they are speaking about might just very well take a bad situation and make it even worse.
My advice is not to seek advice or even a second opinion, just get it from a qualified source and someone who is willing to tell you not only the good, but the bad as well. Getting those good and bad details in writing.. even better.
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Carl Barnowski has 25 yrs. of experience as a retirement income expert specializing in principal protected annuities.