Fisher Investments on Annuities

Informed investors should do several things when purchasing an annuity. Fisher Investments believes obtaining a detailed understanding of the annuity by carefully reading its prospectus is critical. Then ask yourself and the annuity salesperson tough questions before considering annuities an option. You’ll thank yourself later.

Fisher Investments believes annuities are bad deals for most investors. Brokers collect enormous fees for selling annuities under the pretense of safe alternatives to traditional investments.

With a deferred annuity, an investor deposits funds which can grow tax-deferred. The plan is for the investor to later annuitize the funds—essentially surrendering ownership of the assets in exchange for a periodic stream of income.

However, many deferred annuities are never actually annuitized. Rather, the funds are withdrawn upon retirement and simply act as investment accounts holding mutual funds or bonds with stiff fees attached.

Based on Fisher Investments research, the equity-indexed annuity is one of the most common variable annuities being sold today. Fisher Investments believes they are the most confusing class of annuities available and require intense scrutiny of the prospectus to avoid losing money/capital.

Too many equity-indexed annuity investors end up with returns closer to fixed income than to stock market returns. Why? By the time all of the fees are assessed, the caps are taken into account, taxes paid, and dividends go unearned, investors can end up on the losing side of the equation.

Fisher Investments believes annuities are bad options for most investors because there are usually more cons than pros when investing in annuities.

Deferred annuities boast high, ongoing fees; IRS penalties assessed if withdrawals are made before 59.5; 4-11% of the contract value goes straight to the broker, greatly reducing returns on investments; and early surrender fees.

Fisher Investments finds equity-indexed annuity returns are less than stock market returns, due to the fees; the ability of annuity companies to lower cap rates; and if the index used for market-participation calculation does not include dividends, the returns will be substantially lower than an index that does include dividends.

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