Response: Crooks Are After Your Retirement Plan
March 10, 2010 by Sheryl J. Moore
PDF for Setting It Straight with Kathy Kristof
ORIGINAL ARTICLE CAN BE FOUND AT: CBS MoneyWatch
Kathy,
As you well know, I am an independent market research analyst who specializes exclusively in the indexed annuity (IA) and indexed life markets. I have tracked the companies, products, marketing, and sales of these products for over a decade. I used to provide similar services for fixed and variable products, but I believe so strongly in the value proposition of indexed products that I started my own company focusing on IAs exclusively. I do not endorse any company or financial product, and millions look to us for accurate, unbiased information on the insurance market. In fact, we are the firm that regulators look to, and work with, when needing assistance with these products.
I recently had the occasion to read your article, “Crooks Are After Your Retirement Plan,” which was published at CBS MoneyWatch. This is the second time that I have had the opportunity to contact you regarding false and misleading statements that you have made behind the guise of a highly-reputable news source, which has the ability to influence millions of MoneyWatch’s readers. I wanted to call your attention specifically to the mistakes that were made in this article, with the hopes that such mistakes will not happen again in the future.
First of all, I find it despicable that you are making a general sweeping statement that anyone who may help someone with a Roth IRA conversion is a “crook.” This is like saying that all bankers are criminals. I would hope that you would refrain from using such blatantly negative statements in the future. Americans need the assistance of their insurance agents and financial planners now more than ever. With millions of Americans in the wake of losing half of the retirement funds and having to prolong retirement, these financial planners are invaluable to the American public. When you suggest that these people are “crooks,” it causes people to question whether or not they should be receiving guidance from these highly-qualified individuals. There are millions of honest insurance agents and financial planners practicing in the financial services industry today. You do these ladies and gentlemen a great disservice with your stereotype.
- Second, who are these “experts” that suggest that purchasing an annuity is “one of the dumbest things you can do?” An annuity is a very valuable life insurance product and the only financial vehicle that can guarantee consumers an income that they cannot outlive. Even Suze Orman can see that (per her personal website). Indexed annuities in particular offer several other benefits, including but not limited to:
- No indexed annuity purchaser has lost a single dollar as a result of the market’s declines. Can you say the same for variable annuities? Stocks? Bonds? Mutual funds? NO.
- All indexed annuities return the premiums paid plus interest at the end of the annuity.
- Ability to defer taxes: you are not taxed on annuity, until you start withdrawing income.
- Reduce tax burden: accumulate your retirement funds now at a [35%] tax bracket, and take income at retirement within a [15%] tax bracket.
- Accumulate retirement income: annuities allow you to accumulate additional interest, above the premium you pay in. Plus, you accumulate interest on your interest, and interest on the money you would have paid in taxes. (Frequently referred to as “triple compounding.”)
- Provide a death benefit to heirs: all fixed and indexed annuities pay the full account value to your beneficiaries upon death.
- Access money when you need it: fixed annuities allow annual penalty-free withdrawals of the account value, typically at 10% of the annuity’s value (although some indexed annuities permit as much as 20% of the value to be taken without penalty). In addition, 9 out of 10 fixed and indexed annuities permit access to the annuity’s value without penalty, in the event of triggers such as nursing home confinement, terminal illness, disability, and even unemployment.
- Get a boost on your retirement: many fixed and indexed annuities provide an up-front premium bonus, which can provide an instant boost on your annuity’s value. This can increase the annuity’s value in addition to helping with the accumulation on the contract.
I would suggest that you not use Wall Street as a source for information on insurance products in the future. Brokers sell investments, and compete against those who sell insurance products such as annuities. For that reason, you cannot count on getting reliable information on annuities from someone who does not sell them. Only variable annuities have fees and have the risk of potentially losing the client’s principal. Fixed and indexed annuities do not expose the client to such risks. Your generalizations of “annuities” in your article lead someone to believe that you are referring to all annuities, when in reality your statements are only applicable to variable annuities.
Third, you are losing sight of the fact that every consumer has a different risk profile. This is a very important concept when addressing a consumer’s needs in regards to financial services products. Some people feel comfortable putting their money in a “risk money place” (such as a variable annuity, index fund, or stocks) because they are willing to risk losing 20% of their money on the offset that they may make 20%. Individuals who are not willing to stomach the losses of the market will likely seek-out a “safe money place” such as a fixed annuity or indexed annuity. These products will never put the consumer’s principal at risk as a result of market downturns. The typical indexed annuity guarantees that the consumer who deposits $100,000 into the product would receive no less than $172,844 at the end of a twenty-year period, and that is if the market declined EVERY SINGLE YEAR. Who would be upset with a return of 172% while the market is tanking, while still maintaining the peace of mind of knowing that their retirement fund is safe and sound? That is not even considering the upside potential for gains should the market actually increase over that period! With a reasonable return of 7% annually, that same annuity could return $347,469 or more over that same period. THAT is the value proposition of an indexed annuity, Kathy.
Fourth, universal life (UL) is not a “complex product” any more than whole life is. Furthermore, it is intended to be used as life insurance, not a retirement savings vehicle. However, if one does decide to use universal life as the vehicle for their retirement funding, it is VERY simple to avoid making the policy a Modified Endowment Contract (MEC), while staying within the TEFRA guidelines. You are right in that fixed and indexed UL products are unlikely to return 8% every year, however. With fixed UL rates currently around 5%, an indexed UL policyholder can reasonably expect to receive 6% – 7% interest crediting over the life of their policy. There is no universal life product that can consistently return 8% without risking the client’s principal and interest. I must call you out, however, when you say that universal life contracts are currently “paying about 3%.” Where did you obtain/verify this information? It is completely inaccurate. UL rates today are nearer to 5% – 6%. The minimum guaranteed interest rate on UL is typically 3%; this is worst-case scenario crediting.
Fifth, I would suggest that in the future, you use sources that are more credible than Mr. David Bergmann when reporting on fixed insurance products. He is a registered representative, not an insurance agent. Therefore, the primary focus of his business is selling products that compete against fixed insurance products (such as stocks, bonds, and mutual funds). You can see further details about his registration in the attached report which is available to the general public through FINRA’s BrokerCheck system (http://brokercheck.finra.org/Support/TermsAndConditions.aspx).
Sixth, I find it abominable that Mr. Bergman is quoted in your article as suggesting that annuities’ guarantees “dig into the net investment return.” Annuities are a type of insurance, Ms. Kristof. Fixed and indexed annuities in particular offer guarantees as part of their insurance element. This is a valuable feature for consumers who are not willing to risk their principal investment to market fluctuations. Yes, of course guarantees cost. But I ask you this- when you purchase a home, don’t you insure it? Isn’t your homeowners insurance a guarantee that you’ll be “made whole,” should you be a victim of a fire? How is the guarantee on an annuity any different? Is it for everyone- certainly not. However, there are millions that are just not willing or able to lose the little that they have left. Those individuals, like myself, are willing to pay for the guarantees of fixed and indexed annuities.
I think it would help if you understood some basics about annuities, client’s risk profiles, and product choices. There are three questions that must be answered, when looking into what type of annuity is right for an individual:
- What level of market risk am I willing to assume with the annuity? If more concerned about a high minimum guarantee, regardless of the lower level of interest accumulation, consider a fixed annuity. If willing to accept a lower minimum guarantee than a fixed annuity, but looking for potentially greater interest accumulation, consider an indexed annuity. If willing to accept no minimum guarantee, in exchange for the possibility of unlimited interest accumulation, consider a variable annuity.
- How soon will I be taking income? If within the first year, consider an immediate annuity (offered in fixed, indexed, and variable types). If it is further in the future, consider a deferred annuity (offered in fixed, indexed, and variable types).
- How many premium payments will I be making? If only a single payment, consider a single premium immediate annuity or a single premium deferred annuity. If making more than one payment, consider a flexible premium deferred annuity.
In light of the fact that fixed and indexed annuities do not have fees like variable annuities do, and this basic information above, I’m certain you can see how inappropriate Mr. Bergmann’s comments are. While millions of Americans look to CBS MoneyWatch for reliable information on what to do with their money, it is alarming so see such bias and misinformation coming from a seemingly-reputable resource! I would hope that you would be more careful with your sources in the future.
Seventh, it is alarming that you would direct your readers to a tool on the Security and Exchange Commission’s (SEC’s) website for information on where they should invest their money. The SEC only oversees the sales of investments/securities products (those “risk money places” I spoke about). The 50 state insurance divisions of this nation oversee the sales of fixed and indexed annuities and life insurance. For people who do not want to risk their principal payment, the insurance division is the more appropriate resource.
Eighth, it is would be appreciated if you clarify the fact that you are talking about variable annuities throughout your piece, particularly in your comparison against the mutual fund. You would also do well to consider that the index fund is not likely to return 640% over a 20-year period. There is a valuable lesson that I learned when starting in the financial services business, and that is that if it looks too good to be true, it probably is. In my experience, it always is, Ms. Kristof.
I appreciate the opportunity to work with you in the future, in order to ensure that your readers always receive accurate information from you and CBS MoneyWatch. I am certain that CBS appreciates having accurate information in their newspapers, magazines, and websites. Your readers will certainly appreciate you as a resource if they can rely on receiving accurate information from you in the future. Should you have a need for a credible source that can provide accurate and timely information on insurance products in the future, please do not hesitate to contact us.
Thank you.
P.S. Ask us about our new TOTALLY FREE website, www.IndexedAnnuityNerd.com!
Sheryl J. Moore
President and CEO
AnnuitySpecs.com
LifeSpecs.com
IndexedAnnuityNerd.com
Advantage Group Associates, Inc.
(515) 262-2623 office
(515) 313-5799 cell
(515) 266-4689 fax
