Give me your best explanation of why boomers and other annuity buyers have nothing to worry about.
The words “safety” and “guarantee” are often cited by agents describing the top benefits of annuities. Clearly, these are major selling points at any time, but especially so during times of economic uncertainty.
In his article, Why people buy fixed annuities
, Jason Kestler says, “The top priority for most people when they are saving their money, without question, is safety. No one puts their money in a place where they expect to lose it. They put their money in a place where they expect to get it back one day, hopefully with some nice growth.”
The Insured Retirement Institute’s website describes variable annuities as “a very safe investment. Your money is held in what is called a "separate account" of the insurance company. This means your investment is legally protected from the insurance company's creditors.”
And in a recent article by Cal Burgess titled How annuities and life products helped policy owners survive the fall of AIG
, he states:
The protection from the insurance industry is truly unmatched from any other industry. The events at AIG have proven that the policy owner’s money is truly protected, even amidst a financial collapse that required the aid of federal stimulus.
A protective measure of one’s money is an issue that will soon take center stage. As volatility continues over the next several years, investors will breathe easier knowing that their money has total protection. When you add in other benefits, such as tax deferral and indexing crediting methods, these vehicles will become a much desired safe haven for uneasy investors.
Oddly enough, AIG was recently used as evidence for a much different argument by certified financial planner Web Moss in his personal finance blog
. Within a list of red flags for those considering variable annuities, he asks, “What would happen if the Baby Boomer generation needed to ‘collect’ on the ‘theoretical bucket’ guarantee all at once — for example, if the market did poorly over the next 10 to 20 years? How would the annuity companies handle this stampede of Baby Boomers that need to “collect” around the same time? Remember AIG?”
The annuities industry clearly does all it can to allay people’s fears about these products, but just as clearly, a large percentage of Americans remain unconvinced.
So, give it to us straight: What are the chances of a collection stampede if the economy tanked? (I'm picturing the bank run scene in "It's A Wonderful Life.") And if it did happen, how would it affect insurers and annuity policy holders?
For the sake of argument, let’s pretend these concerns are being expressed by a prospect or client. Give me your best explanation of why boomers and other annuity buyers have nothing to worry about.