Millions of American retirees are diversifying their investments across a wide range of financial products aimed at providing growth and income.
The most popular investments consist of stocks, bonds and fixed-income, and annuities.
The problem with this diversified balance of investments is that one of them--i.e. “Annuities”--isn’t an “investment.” Instead, it’s a complex insurance product.
So what’s so wrong with this insurance product?
Some Americans have learned, perhaps too late and perhaps at a steep and financially debilitating cost, that annuities can sometimes be a Faustian bargain, the proverbial “deal made with the devil.”
Just ask customers of Midland National Life, an issuer that recently got charged for illegally misleading seniors into buying “inappropriate” annuities designed to add to their coffers at the expense of seniors’ financial well-being.
Midland ended up paying a $1.3 Million settlement after the California Department of Insurance got wind of their fraudulent practices: “Midland’s illegal tactics provided big commissions for their agents and handsome profits for Midland while seniors lost money,” according to Insurance Commissioner Dave Jones
Here’s what happened: a 75-year old woman bought a $91,000 annuity. It had a 14-year surrender period.
Likely, the unscrupulous advisors sold the annuity in such a way that touted all of the benefits, but minus one major caveat: the customer couldn’t liquidate the annuity or make withdrawals beyond the regular distribution until age 89.
Bear in mind that in your Golden Years, your healthcare needs tend to increase, meaning more costs, many of which can be (expectedly) “unexpected.”
So two years later, her husband had a stroke. She needed to place him in a care facility. She needed more money, so she looked toward her annuity.
She ended up paying Midland National an exorbitant surrender penalty of $27,500!
According to Jones, “Selling a long-term annuity with a 10- or 15-year surrender period to someone of advanced age can have dangerous financial consequence...[the] law also gives me the authority to revoke an agent’s license, impose fines, and restore money lost to the consumer.”
It gets worse.
After a thorough investigation following other consumer complaints, it was revealed that the annuity products Midland sold to California customers had not been filed with the California Department of Insurance!
This meant that these seniors were buying products that had no state-regulated protections!
It gets even worse, yet again.
Investigators also learned that Midland’s agents were financially incentivized to sell unnecessary replacement annuities to unsuspecting or overly-trusting seniors!
Case in point: a Midland agent convinced an 85-year old woman to replace her high-interest annuity for a “replacement” annuity that locked her into a low-yielding rate for up to eight years.
- Her original annuity yielded a 5.5% interest rate payment + ZERO surrender charge.
- She was convinced to replace it with an annuity that yielded 4.35% interest for eight years, after which the payments decreased to 3% + TEN PERCENT surrender charge for the next five years.
No doubt the insurance agent was rewarded handsomely for placing this innocent woman’s finances at grave risk.
You’re On Your Own! - Is That What This All About?
Some of our readers might think, well, “you didn’t read the fine print,” or, “you are responsible for your taking such a dumb deal.”
Though in a harsh and cold world, it may be true, what the heck happened to human integrity and accountability?
The problem is not just with Midland National, or even the annuities industry as a whole...the problem lay within the product itself.
Annuities are NOT investments.
They are complex insurance products, many of which are purposely designed to make the issuers wealthy at the expense of the senior citizens who hold them.
Do you harbor doubts? Just take a look at Midland National.
Might you need to extend your annuity to your spouse, or make it inflation-proof, or whatever else you might need? Annuity products have “riders” (extended benefits) for all of that.
What the agent won’t tell you is how the riders will significantly reduce your returns.
Want out of the annuity contract? Good luck.
Need money because your health or your spouse’s health took a turn for the worse? Your money is locked up...though you can still withdraw your money, but at a cost that may leave you in the poor house.
All of this for the shiny incentive of “guaranteed income.” Is it really worth it?
And while you or your spouse suffer the financial consequences of this agreement, what kind of lifestyle do you think your annuity agent is enjoying?
And unlike stocks, bonds, or gold...once you are gone...in most cases, your annuity contract is terminated. Nothing to pass on, hence NO INVESTMENT.
Annuity issuers are sophisticated and highly-incentivized RENTSEEKERS.
Trust us on this one: an annuity agent is not your friend.
Invest in real assets or simpler yet more certain ones at least. Want securities--equity and/or debt? Invest in them. Equities will grow (even if they go down every now and then) and you can pass them on. Investment-grade debt securities will give you income and you’ll get your principal back.
Want sound money that protects yours from inflation and market risk? Buy gold and buy silver.
No counterparty there, no paper, no risk of default. Pure 100% sound money.
Add gold and silver to your equities and debt securities to make for a strong diversified portfolio.
But whatever you decide to do, think twice about making a Faustian bargain with a rent-seeking insurance company that sells you a product that appears to be an investment.
You may regret it for the rest of your life. And once you’re retired, all you have to enjoy is the rest of your life. Don’t ruin it.
About The Author: Dave Stephens is a former insurance broker for Lloyds of London and has a true understanding of the complex issues that annuities create. For a free analysis of your annuity plan call David Stephens directly at 800-474-9159. To discover options for breaking your contract click here.