The Runnymede blog has become one of the most visited sites for annuity reviews with over 100k views. Since 2013, I’ve been writing independent annuity reviews to help buyers like you understand the complexities of annuities and truly understand what the products can deliver. Today I’m going to talk about the 3 biggest fixed index annuity myths.
The first myth is: There are no fees.
One popular annuity brochure states boldly: no up front fees or sales charges. This is a crazy claim. Index annuities typically earn agents between 7-10% of the premium. Where do you think that’s coming from? Yes from your purchase. The fees are just built into your returns so you don’t see them. I’m sorry but there isn’t one investment product that is no fee. None. Zero. Zilch.
The second biggest myth is: You can earn Stock market returns.
Index annuities use interest crediting methods that use index names like the S&P 500, Dow or Nasdaq. This may make you think that you can earn stock market returns. Wrong. It’s important to know with index annuities you don’t own any underlying stocks or securities. Your returns are based on mathematical formulas. And thanks to caps and spreads that can change on a yearly basis, you will NEVER earn anything close to stock market returns. Index annuities should be thought of as a fixed income replacement. So expect returns on par with CDs.
The third myth is there is: No downside risk.
One of the most popular annuities starts with a minimum guarantee of 87.5% of total premium. Wait how can this be? I thought there was no downside risk. Shouldn’t it be 100% guaranteed? Here’s the catch. If you need your money early, then you have to pay huge surrender fees so they can’t guarantee you 100% from day 1. With annuities, a good guideline to follow is NEVER purchase more than 25 of your portfolio in annuities because of the lack of liquidity and high surrender fees..
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