Letters: Advice on annuities badly out of date
October 18, 2010 by Roy Rosner
By Letters to the Editor for Sunday, Oct. 17
Posted: 9:21 p.m. Friday, Oct. 15, 2010
The Oct. 3 Motley Fool column did a disservice to all readers, but especially to those in or near retirement.
The information about annuities (Equity Index, Variable and Lifetime Income) is a decade or more out of date. Modern annuities – those purchased since 2001 or later – have wonderful features to protect principal, protect earnings, and in most cases provide a lifetime income stream at a guaranteed rate that can be exercised if the underlying stock market investments or indices don’t perform well.
The equity index annuities that I purchased in September 2004 have appreciated more than 35 percent, even though the S&P 500 has risen only 0.7 percent and the NASDAQ index has dropped more than 6 percent. Numerous academic studies, including one by the Wharton School of Finance at the University of Pennsylvania, have shown the value of annuity products over many periods of both good and poor stock market performance.
“Fees” charged by annuity companies are effectively “premiums” to insure the minimum future value of the owner’s account. People who are close to, or are in retirement cannot afford to keep their life savings completely uninsured; many people that I know have lost their lifestyle (and several have declared bankruptcy) as a result of the catastrophic losses of 2008-09. Meanwhile, my index annuties never dropped a penny, and continued their growth with the resurgence of the markets beginning in March 2009.
I bet that even the “Fools” who wrote this terribly biased column spend 2 percent or 3 percent of their home’s value for homeowners insurance, and probably 5 percent or more of the value of their cars each year to insure them against loss. How can they allege that people are not wise to spend 1 percent or 2 percent to insure that their investment account value will never go down, and will go up handsomely in strong markets? Your readers could benefit immeasurably from advice on how best to use annuities.
I am not an annuity salesman, just a very happy investor.
ROY ROSNER
Wellington
