Straight Talk on Equity Index Annuities

Few products generate as much confusion and controversy as equity index annuities, both pro and con.  We’re often asked if these products are any good. 

Want the Straight Talk? No, we don’t think they are.

Want to know why?

The premise of an equity index annuity is attractive- it is promoted as a high yield safe investment. But skilled salespeople can make anything look good by highlighting the best possible scenario and glossing over the worst case.  In reality, equity index annuities expose investors to market risks while simultaneously capping appreciation and imposing high fees.

Fundamentally, equity index annuities link the annuity appreciation rate of the annuity account balance to a stock market index.  Seems like a good idea, right? Eliminate the cost of managing a mutual fund in your sub-account and you should produce better returns by simply tracking the market, right?

Well, what is rarely explained is how the annuity return is calculated.  Insurance costs, dividend exclusions, surrender charges, maximum gain caps…. These and a host of other confusing riders, exclusions and contract loopholes usually leave an equity indexed annuity owner unhappy.

To understand the 5 critical components of picking an annuity, get our Report . You will learn the motivations of the company and the agent involved in the transaction, and protect your interests.

Some of the risks with Equity Indexed Annuities are:

	Long surrender charges, even charges that survive the life of the annuity holder and are assessed to the heirs!
	Two-tiered products which force the holder to annuitize their account balance to get even the guaranteed minimum rate.  In other words, the guarantees and floor returns are only valid if you convert your equity indexed annuity at the end of the deferral period into an annuity payment stream, otherwise you’re only entitled to your paid in premiums with 0% gains.
	Dividend exclusion: Many companies remove dividends from their calculation of the index return.  Excluding dividends takes 2-4% off the equity index annually!
	Index appreciation rate caps- many companies cap your appreciation rate, even if the index does much better.
	Timing- when index returns are calculated can have a dramatic effect on the return.
	Surrender fees as high as 10%,
	Surrender schedules 12 years or more
	Agent commissions of 7 to 10% of the annuity amount
	These and other red flags indicate that most equity indexed annuity products are marketed with using greed over logic, and promote what pays the agent and the company the most, as opposed to providing a product that is right for the customer.  Be Wary!

So what is a retirement saver to do? What else is out there that is safe, offers guarantees, and has a good yield? Simple- consider Fixed Annuities.

Fixed annuities are not as glamorous or in favor, but they are simpler products, their returns are much safer, and their risks much lower.  Why aren’t they promoted as often? Find out in The Annuity Report .

Always be aware of the interests of the other people at the table with YOUR money!