A reader sent me a great question last week. He was inquiring about a site called Senior Annuity Alert.
My reader asked, "Can you provide me any information as to who these folks really are before I give them my e-mail address and get involved with people calling me every day trying to convince me their plans are the best buy."
When you go to the site, it says in GIANT type, "8% for life *guaranteed income". There's a video to watch, and of course they want your email address.
Well, heck, I'll gladly take on the challenge of them trying to convince me their plans are best. (I have a funny feeling I could have them trying to get off the phone with me before I tried to get off the phone with them), so I put in my email address. The site then gave me access to another page where I could watch a video, and get a free 76 page booklet if I scheduled a "personal consultation with a top annuity expert". I thought I'd spare their poor reps the horror of a personal consultation with me. Really, I think I'd be their worst nightmare.
The reality is, I'm pretty sure I have already seen and devoured information on the type of product they are going to talk about. You see, there is a little asterisk in front of the words "guaranteed income". At the bottom of their web page is the disclaimer that goes with the asterisk. It says "8% guaranteed income based on income account value".
That "income account value" is not the same as your actual account value. Understanding how that income account value (sometimes referred to as the "income bucket") works is critical to understanding the guarantees in these products - and how and when they would actually apply. I'm not saying the products are bad. It may be exactly the right product if it is part of an overall retirement income plan or well thought out investment plan.
What is worri-some, is usually these products are sold as stand-alone solutions rather than part of a solid plan.
A recent academic had this to say about annuities,
"The complexity of the annuity industry should be sufficient to raise significant concerns. I needed the help of a trained mathematician and economist and the construction of a Monte Carlo model to accurately and comprehensively understand the product. Who can an advisor, much less an unsophisticated investor, turn to for similar support?"
So, please, watch out. It's dangerous out there if you don't have someone interpreting the fine print.