The Indexed Annuity Leadership Council recently interviewed DailyFinance contributor John Jamieson on preparing for retirement, the importance of a balanced portfolio and the benefits of fixed indexed annuities. This interview has been split into two parts. The opinions expressed in this articles are those of the interviewee, John Jamieson and do not necessarily reflect the views and opinions of the IALC.
Part II: Annuity Myths Debunked
Is a 401(k), alone, enough for a person to retire on?
No, and I don’t even believe anyone starting out needs a 401(k) to retire successfully.
What’s one or two well-known myth(s) of fixed indexed annuities that people should debunk?
(1) The biggest myth is that because there are fees in the product, it’s automatically a bad product.
It is not about what you pay (although the fees in most of these products are reasonable). Remember, it is not about the fees, but what you receive in return for those fees. However, remember that a fixed indexed annuity is very different than a variable annuity. Most of the variable products come with less value and more fees due to the active money management inside the product.
(2) Those who sell FIAs make commissions when they are sold, so they are a scam or rip off.
Understand that the commission is paid from the carrier, not from the purchaser’s cash account. The purchaser only ends up paying the commission out of their pocket, if they cash in the product early and get charged an early termination fee. However, if the agent does a good job of educating the consumer about what money should be placed in an FIA and what kind of money should not be placed in an FIA, early withdrawals won’t be an issue for most annuity purchasers.
Also, to put early withdrawal fees in perspective, if you cash out your $100,000 annuity and pay a 10% or $10,000 loss, that is never a good way to build wealth. Yet, how many investors will lose 10 percent to 60 percent of their market value during market corrections and not really be all that concerned? So, even in a loss situation, your stop loss, if you will, is 10 percent in many products. This only happens if you take out more than a certain percentage of money in the first five to 10 years on most products.
Everyone makes money doing their job. So, that shouldn’t be frowned upon. But, the good financial planning companies, like mine, educate their clients and match the client with the product retirement and financial goals. Additionally, good planners, educate their clients on how the product works and advises on all the upsides and downsides.
Any other parting words or advice to share with our readers about preparing for retirement?
- Take some time and spend a little money to become educated on your choices
- Question all accepted norms in the financial world.
- Be careful of who your financial “guru” is.
- Always think for yourself and be open to reason and alternative ways of thinking.
- Study true wealth, not flash wealth, i.e. who is driving the best car or living in the best homes. Those two flash items can be a sign of wealth but many times they are a sign of high income and little to no net worth. As they say in Texas, “all hat and no cattle.”
Study who controls most of the wealth in the world and how they grow and protect their wealth. You will quickly discover it is not with 401(k) plans or IRA’s.