{"id":13225,"date":"2025-11-30T06:00:44","date_gmt":"2025-11-30T12:00:44","guid":{"rendered":"https:\/\/legaltalktexas.hammerle.com\/?p=13225"},"modified":"2025-12-01T12:29:07","modified_gmt":"2025-12-01T18:29:07","slug":"annuities-are-all-about-giving","status":"publish","type":"post","link":"https:\/\/hammerle.com\/legaltalk\/estate-planning\/annuities-are-all-about-giving\/","title":{"rendered":"Annuities Are All About Giving \u2014 But What Are You Getting in Return?"},"content":{"rendered":"

Understanding the \u201cSeason of Giving\u201d Pitch<\/b><\/h2>\n

In this season of giving thanks for giving and giving for thanks, we should look at a financial product that is all about giving. I am speaking, of course, of annuities.<\/span><\/p>\n

An <\/span>annuity <\/span><\/a>is often marketed as a modern miracle: you give money to an insurance company and receive a guaranteed stream of income in return. Frankly, the insurance company is embarrassed to be caught doing such a generous thing for its customers. Why, the insurance salesman will even invite you to a free lunch seminar just to spread the word about the company\u2019s good deeds.<\/span><\/p>\n

Pass the butter and sign me up, Ernie. Or maybe not. There are a few things you should know before you sign on the dotted line.<\/span><\/p>\n

The Hidden Costs Behind Annuity Contracts<\/b><\/h2>\n

High Commissions and Sales Incentives<\/b><\/h3>\n

Annuity contracts are expensive and complicated. Some types of annuities pay high commissions to their agents \u2013 often as much as 10 percent. Agents are motivated to sell you an annuity, often without analyzing your finances and investment mix to determine if you actually need it.<\/span><\/p>\n

Liquidity Limitations and Surrender Fees<\/b><\/h3>\n

Once you put your money into an annuity, you have locked it up. That means if you need sudden liquidity for medical expenses or long-term care, that money may not be readily available to you or, if it is, you may have to pay a steep surrender fee to get it.<\/span><\/p>\n

Complex and Confusing Contract Terms<\/b><\/h3>\n

Annuities can be extremely confusing, with the <\/span>contract <\/span><\/a>containing terms like bonus rates, participation rates, caps, floors, spreads, riders and MVA clauses. It is difficult to understand how returns are calculated, what triggers fees, or how riders work.<\/span><\/p>\n

Why Retirees Are Prime Targets<\/b><\/h2>\n

Long-Term Annuitization for Short Life Expectancies<\/b><\/h3>\n

Retirees <\/span><\/a>are often targets for the insurance agents. Some sales agents will sell long-term annuities to people in their \u201870s or \u201880s where the surrender period may outlast that person\u2019s life expectancy.<\/span><\/p>\n

They show a chart with compounding values, without emphasizing how long it will take to reach those figures. They show estimated payments coming out, without focusing on risks and the opportunity costs.<\/span><\/p>\n

Risk of Elder Financial Exploitation<\/b><\/h3>\n

Annuities offer the perfect opportunity for <\/span>elder financial exploitation<\/span><\/a> because they can be extremely difficult to unwind. Some agents will discourage you from consulting with your family or your attorney and pressure you to sign immediately.<\/span><\/p>\n

They make it easy for you to miss deadlines, make a wrong payout election, or be unable to verify whether the product is performing properly.<\/span><\/p>\n

Evaluating Real Returns<\/b><\/h2>\n

Why Many Annuities Underperform<\/b><\/h3>\n

Unfortunately, after rider fees and caps, many annuities provide conservative returns that simply do not justify the inflexibility that comes with them.<\/span><\/p>\n

Common Types of Annuities<\/b><\/h2>\n

Immediate vs. Deferred Annuities<\/b><\/h3>\n

Immediate annuities have payments that begin within 12 months of purchase. They are typically purchased with a lump sum.<\/span><\/p>\n

Deferred annuities have payments that start later, often years after their purchase. The money grows tax-deferred in the meantime.<\/span><\/p>\n

Accumulation Methods<\/b><\/h3>\n

Annuities come in several <\/span>accumulation <\/span><\/a>methods:<\/span><\/p>\n