What's the downside to indexed annuities?

Question

Claim is that an annuity indexed to the S&P has averaged 9.1% yearly. And can never go negative even when the Market crashes. Too good to be true?

Answer 1

I've never heard of such a deal. Is it too good to be true? On the surface, not really.

As the other answerer said, read the fine print very carefully.

What I expect is going to happen is that during the good years, the company will invest a majority of your funds in the S&P 500. They'll probably take some money and invest it, try and earn a higher ROR than the S&P 500, and keep the change.

In bad years, the company will probably invest the money in some bond funds or another investment vehicle that tends to have a ROR inversely related to the stock market. During these times, you earn nothing and the company makes 8% and keeps the change.

What would I expect to see in the fine print? Probably some pretty high administrative fees. There will probably be some pretty major penalties if you need to get at the money before the annuity starts the payout.

Too good to be true? No. Do I smell something rotten? Not quite sure...I would proceed with caution though.

Annuities should be an investment of last resort. An annuity should be something you invest in after your 401K and IRAs are maxed out (assuming you are investing for yourself). If you are setting up on someone else's behalf (say leave money to a grandchild), then....whatever floats your boat.

Make sure you stick with a reputable company. I haven't looked into them in detail, but Vanguard annuities look to be low cost and friendly regulations.

Personally, I would only invest in an annuity with a company that also controls mutual funds. If the company controlls billions of assets over a period of years with no regulatory issues, I might consider investing in an annuity with them (but that is just me)

Answer 2

yes-

check the fine print for the fees--

they will be very high... but in very small print.

why f around with an annuity indexed to the S&P when you can buy S&P etf for minimal expense.

Don't get brokered by your crooked advisor/broker.

Drop them immediately.