George has been a client for a while, recently retired, and has plenty of money to get through retirement, though he worries about it all the time. It turned out that George had purchased a small (for him) index annuity before coming to us, which he thought he had a pretty good handle on until he came to one of our “Got Annuities?” workshops.
The Shocking Truth About His Annuity
When George got home, he started digging. When he had been sold the annuity, the agent told him that he was guaranteed to get his share of the market return, or 3%, whichever was greater, each year. Thumbing through his statements, he was shocked to find that his annuity showed no gain whatsoever for the prior contract year.
Puzzled, George called the insurance company, which merrily explained to him that the guaranteed increase was cumulative, not annual. Which is to say that since George’s share of the market gain the first year (1999, the last booming bull year before the bear market beginning in 2000) was something like fifteen percent, he already had received something like five years of guaranteed return before the insurance company was on the hook again. And wasn’t it an amazing product? Wouldn’t he like to buy more?
Now George is a shrewd man, and had made his fortune in the financial arena. He understands the difference between cumulative and annual. And what the salesman sold him was not what the contract delivered.
Passing Down The Story
Thankfully, the amount in this annuity is small change to George, and he’ll just wait it out, and chalk it up to experience. At least he has good reason to say no when the agent calls looking for fresh commissions, as he does monthly. George sure is lucky, he says, that he didn’t trust this “rascal” with more of his money.
On learning all this, George promptly called me to pass it on, so I could pass it on to you.
The preceding story is based on an actual situation and was shared by an investor we met in our professional practice. The names and non-material details have been changed to protect identities. The essential facts dealing with product representations and sales practices have been faithfully recorded.
This case history may amaze, amuse, and incite you. It may also inspire you to take action if you had a similar experience.
Most importantly, this case study may help you to realize that you are not alone, if you feel that you may have been subject to less-than-forthcoming annuities sales tactics. From the high number of cases we’ve seen like this, we can only infer this kind of monkey business is too common where these products are concerned.
Camarda offers free Portfolio Stress Tests which can include annuity cost/benefit analysis and rescue plans. To request one just click here – no cost or obligation.
