The more annuity bells and whistles you buy... the worse your performance will be.
Response: Thanks so much for the question Sam and here's the straight scoop. First of all the underlying fuel for a disgruntled owner of anything including an annuity is their expectations. When you sit in front of someone who is talking to you about market like returns with protection and bonuses and guaranteed income etc. people tend to get excited. What I have found in my 25 years of experience is that when it comes to annuities in general, consumers are sucked in by the flashy enticements like bonuses, income riders, roll up rates that they typically think is a guaranteed return and Death Benefit Riders. Consumers love the features and things that make these products sound fantastic... the downside is that they rarely if ever understand the affect of having these features included in their contract on the underlying performance of their investment. Investors don't typically complain about the 10% bonus a year or two later... what they complain about is the fact they learned some new terminology like what a cap is or that there was a fee for those riders and a vesting schedule for that bonus.
When I sit down with someone to discuss an annuity that they own or we are talking about putting funds into a new contract the very first thing that we talk about is the use of those funds. Are we buying an annuity for appreciation and growth or to produce income. Often those two varieties will lead us down two very different paths. I see so many annuity contract owners who come to me for an Annuity Report Card® who are unhappy because of their returns, but don't understand the very things that excited them about making the purchase is the same items that are causing their funds to perform poorly.
The lesson of the day is when it comes to annuities as well as so many other things in life... "you can't have your cake and eat it too". If you are buying annuities laced with additional costly features, don't expect your investment return to knock your socks off. Most often you can have one or the other but not both.
Thanks again for the question Sam.
Carl Barnowski has 25 yrs. of experience as a retirement income expert specializing in principal protected annuities.