- November 30, 2022
- Posted by: Karl B
- Category: Dividends
This is better than an annuity – 5 options for better returns at a lower cost.
I was online just 10 minutes ago and I saw it again… A crappy little advertisement offering me an annuity.
WHAT. A. SCAM.
I’m sorry but for 95% of the people out there… annuities are a scam.
Let’s cover when annuities are not a scam.
The “IF’s” Of Annuities
If you have a very limited amount of money… IF you are extremely risk averse… IF you are not financially educated… IF your costs are fixed and not expected to rise… IF you find a low-fee annuity… and IF it provides the income you need for the rest of your life…
Then – and only then do annuities make sense.
That’s a lot of “IFs”
For some people, taking your money and turning it into an annuity for stable income can be a smart move.
For everyone else… Run the other way. Seriously. Annuities are a very scary financial product that just don’t make sense for most people.
Where did these “three headed beasts” of a financial product come from? They were born out of the insurance industries’ grab for more money. What they do simply is combine a life insurance product with an investment product… add on HUGE fees then sell them to the uneducated public.
You can tell I’m not a fan, RIGHT!?
Stocks Are Clearer
You buy a stock – and you pay a few dollars in commissions. If the stock goes up you make money… if the stock goes down you lose money. Some stocks pay dividends – Some don’t.
With annuities, you need a map, a guide, and a magic lantern to help you find an infinity stone… then maybe, someday you’ll have something that may or may not be worth anything.
I once looked at an annuity that was so complex I had no idea what I was buying. I didn’t buy…
The more complex something is, the greater the chance of someone screwing you. (Pardon my French, but that’s the truth.)
How Complex Are Annuities?
I once spent an hour with an insurance guy asking him to explain an annuity he was trying to sell. All I did was ask some basic questions… like what happens if the market goes up… how much do I make. Or if I die, how much does my family get?
Or my favorite question, what fees and commissions am I paying to buy this annuity… and what happens when I want to sell it?
We only got through 3 questions before the hour was up…Damn thing was so complex he couldn’t even explain it.
Needless to say, I don’t listen to that guy for advice.
There are dozens of types of annuities…
Fixed Indexed Annuities
Long-Term Care Annuities
Deferred Income Annuities
Qualified Longevity Annuity Contract
Secondary Market Annuity
The Medicaid Annuity
The Charitable Gift Annuity
Registered Index-Linked Annuity
Maybe your “Insurance” guy is trying to sell you one.
Just a little inside baseball… The fees on annuities are HUGE.
Now you know why he’s pushing you to buy an annuity… and never calls about great deals on term life insurance!
He makes way more money selling an annuity than term insurance. By a whole lot more – I mean like thousands and thousands of dollars more.
Don’t get suckered into his slick sales talk.
So What Is An Annuity?
Put simply, you hand a lump sum of money to the insurance company, and in exchange, they give you a steady stream of payments based on a preset formula.
So, determining if you should buy or not should be simple… if you hand over a lump of money will you get it back, plus some appreciation or return.
But here’s the problem.
The Insurance companies put their fingers into the annuity product and made it super complex.
They added things like guaranteed payouts, and survival clauses, or growth rates tied to indexes of stocks or the market. They often added in insurance products that have no real value – other than to tie you into an expensive insurance contract. Look, the bottom line is – even if annuities were simplified – the fees are ridiculous.
So, just say no and run the other way.
If you need a steady stream of income, there’s a bunch of other investment types out there.
Things like real estate, a bond ladder, or a basket of dividend stocks all provide regular income.
’ll be writing more about income from dividends in the future. And remember, just say no to Annuities.
By the way, If you’re interested in investing in cash flow, check out my newsletter – The Dividend Tree.
Every month I uncover a bunch of dividend stocks, paying fat dividends. It’s cash flow you can use, or sock away for retirement. Learn more about it here…