For a year or so, I have been discussing headlines in various media outlet advertisements, and how they distort the truth, imply false “facts,” and mislead their readers. In most cases, that appears to be the intent of the writer. Many times, the implications and information is just plain false.
The annuity industry is among the most guilty, often including both distortions and lies of omission. I’m not sure which I dislike the most.
Growing up, we learned that there were three kinds of lies; white lies, damn lies, and statistics. Recently, though, type number four, the lie of omission, has played a predominant role in the media.
What is reported and what is left out are often co-equal methods of delivering untruths and distortions about the value of a product. This week’s headline dandy is, “2016 Statement Returns of 13.2%.” The sub-headline includes the ridiculous further claim of having “no risk.” How is it possible that a company can advertise this wild claim? Here’s a little insight.
- First, notice the term “statement returns,” which is their way of saying that it is all on paper. This works by having the annuity company credit your account with 10% after you purchase the annuity, calling it your “bonus.” But what happens if you try to remove the money from your account? You will learn that the 10% “bonus” has to be earned over a long period of time. Worse yet, it comes out of the interest credited to your annuity. Who paid the bonus – was it them, or was it you?
- What about the “no risk” claim? The implication is that the annuity company guarantees the annuity, eliminating risk to the buyer. Insurance companies are highly regulated, but they still fail. Your risk is that the company will not be profitable enough to pay everything contractually owed to you over your lifetime. Is this really a “no risk” proposition?
- Now, from the 13.2% first year statement return, subtract the 10% signing bonus, and it appears 3.2% will be your guaranteed annual return. This is a very easy number to manipulate, and you will never see the return in a manner whereby you could withdraw your funds, including the 3.2% annual credit. This compounding yields a sum of money called the benefit calculation number. The benefit calculation number is the paper value on which your monthly payout will be based when and if you annuitize.
- Annuitizing an annuity means changing from the accumulation period to the distribution period. Once payments begin, they are fixed for your life (unless you accept a lower payout at first, with an inflation rider added on). While designing the annuity, the annuity company can manipulate this number by changing the stated annual return, or the percentage payout you receive upon annuitization.
A thorough look at the misleading advertising coming from the annuity business world would take volumes. Our purpose is to enlighten our readers so they can sift out the relevant facts. If you have questions about your annuity, or are considering an annuity purchase, talk to us in the office, or you can always call the show between 10:00 and 11:00 on Saturday mornings.
It will be interesting to see how the annuity industry will change in reaction to the new fiduciary rule scheduled to be implemented in April of 2017. At that point, this style of advertising should be much more difficult to mislead the unsuspecting public. April can’t come soon enough.
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