Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy Government PANICs! Sterling Collapses! - 19th Mar 20
Coronavirus Market Crisis - Nowhere to Hide! - 19th Mar 20
Coronavirus Most Likely GDP Economic Outcome for Q1 and Q2 2020 - 19th Mar 20
How COVID-19 Leads to 2008-Style Bank Crisis - 19th Mar 20
Coronavirus Impact on Global Economic GDP Numbers - 19th Mar 20
Bticoin Crash Big Channel Review - 19th Mar 20
Gold is Doing Its Job…Silver Will Come Back as a Safe-Haven Asset - 19th Mar 20
The Chartology of Coronavirus Deflationary Event - 18th Mar 20
Fed Slashes Rates to Zero and Introduces QE in Response to COVID-19. Will Gold Rally Now? - 18th Mar 20
Coronavirus - Nothing to Fear but Fear Itself - 18th Mar 20
The Stocks Bear Market Is Upon Us... Or Not - 18th Mar 20
US and UK Coronavirus Containment Incompetence Resulting Catastrophic Trend Trajectories - 17th Mar 20

Market Oracle FREE Newsletter


Annuities The Worst Investment You Can Make?

Personal_Finance / Pensions & Retirement Aug 04, 2013 - 12:24 PM GMT

By: Investment_U


Alexander Green writes: A couple months ago, I wrote a column about a good friend who’d plunked a substantial part of his life savings into an expensive and unnecessary whole life policy. I explained why this is almost always a terrible investment.

But my friend’s insurance agent is back at it, pitching him now on annuities. “It’s like an IRA, offering tax-deferred compounding but with no investment limit,” the salesman gushed. “And you are guaranteed a lifetime of minimum withdrawals, no matter how long you live or how poorly the stock or bond markets perform. No other investment product offers this combination of benefits.”

Wow. Sounds enticing. Who could argue against these great benefits?

Only those who know the facts. For starters, you really shouldn’t be buying broker-sold investment products. These are ideal for only one kind of person: salesmen. They offer the highest commissions in the industry – and believe it or not the SEC doesn’t even require them to be disclosed in the prospectus.

Know the Drawbacks
Annuities are generally used to achieve either tax-deferred growth or lifetime income. My friend’s agent did a fine job of summing up the potential positives. But, in my experience, most agents either ignore or don’t know all the negatives. So let’s consider them here:

1.Annuities are not FDIC-insured.
2.Withdrawals prior to age 59 1/2 are generally subject to a 10% IRS penalty.
3.Annuities are the highest-cost investment products in the financial industry. Average annual expenses are up to three times higher than a typical mutual fund and up to 30 times higher than a typical Vanguard index fund. This, of course, sharply reduces your future investment returns.
4.If you cash in a variable annuity, your gain (if any) will be hammered at your income tax rate, not the lower capital gains tax rate. If it’s any consolation – and it’s not – your tax burden may actually be less because the high annual fees will dramatically lower your investment returns.
5.You can get most of the same tax-deferral benefits (at 1/30th of the cost) by simply buying and holding Vanguard equity and/or municipal bond index funds. Or by buying and holding individual stocks and holding companies like Berkshire Hathaway or Biglari Holdings. (So much for the big “tax advantage.”)
6.If inflation heats up, your fixed annuity payments will lose their purchasing power. (Insurance agents will counter that some products allow policyholders to raise their annual payouts by 1% to 3% a year. But that means you have to start with lower payments. There’s no free lunch.)
7.Oh… and about that principal guarantee. Your contract – contained in a prospectus up to three inches thick – will require you to hold the annuity for many years to realize that guarantee. If you cash it in sooner for some reason, you will be hit with an additional fee – called a surrender penalty – equal to up to 10% of your investment.
8.Even if you hang in there for years or decades, a guarantee is only as good as the issuer. Understand that you are surrendering your principal to the insurance company immediately. And while your agent may brag about his company’s high rating from A.M. Best, remember that the world’s biggest insurance company, AIG, imploded in the financial crisis and had to be bailed out by Uncle Sam. How confident are you that this won’t happen again in the future? Yes, there are state industry-backed guaranty associations, but they have limits. In a major crisis, they may not cover your insurer’s insolvency. (To find your state’s limit, visit

Pros and Cons
So, yes, annuities do offer certain advantages. But, in most cases, they are swamped by all the drawbacks. You are free to make up your own mind, of course. But you can only make an informed decision if you are aware of both the pros and the cons.

If you’ve plunked a substantial sum into an annuity, I’m sure you were told of the potential benefits. The question is whether the negatives were explained. In my experience, the ultra-high fees and commissions cause most agents to ignore or gloss over them.

So think long and hard before you buy one of these. Annuities are expensive to get out of; once you’re in, you’re generally stuck.

It may not be the worst investment you can make, but it ranks up there.

Good investing,



Copyright © 1999 - 2013 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email:

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Investment U Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules