Recently, a handful of companies across the US are switching up the benefits packages offered to their employees. Typically, in a high-authority company, employers will have the opportunity to put money away in their 401(k) while their company matches a certain percentage. Or, some companies will even offer shares of life insurance. However, we are seeing that more and more companies are doing away with life insurance policies and offering something different: annuities. With cuts being made to retirement spending, more and more employees are faced with a real loss on their hands in terms of their retirement fund. While annuities do have their benefits, they also have many problems. The number one problem is their total cost.
The problems with annuities run far and wide; however, there are 3 main issues that make it hard for individuals to benefit from–making it more of a risk than a reward. With that, let’s take a closer look at the top 3 problems with annuities:
A major problem with annuities is anti-selection. In terms of anti-selection, actuaries must price different annuity rates based on extraordinarily high life expectancy rates. This mainly due to the fact that many elderly people–ranging from good to poor health–aren’t too concerned with outliving their savings. This means that they are less likely to invest in annuities. So, when comparing life insurance policies and annuities together, there’s quite a major difference in the way these policies are priced. For instance, for certain life insurance policies, many insurers will require their clients to partake in a thorough medical exam. They require this because they know that anyone who’s diagnosed with a life-threatening medical condition will have a better chance of investing in a life insurance policy. Which goes to show how insurers take advantage of their clients. But annuities aren’t any better since their rates are based on disproportionate assumptions which greatly discourages many senior citizens from investing.
Another significant problem with annuities is the costs that come with fixed payout guarantees. You’ll find that many insurers will try to sell an annuity on the basis that they can guarantee fixed payouts to their clients month after month during their retirement years. However, to do so, the insurer must ensure their money with careful conservation in mind. To truly attain a fixed payout month after month, there are significant costs attached. By investing a client’s money conservatively, there’s minimal room to really grow their investment which greatly hurts them in the long run.
What many people don’t realize is that the industry of individual annuities comes with significant marketing and administrative costs. However, these costs are not something that your typical employer is faced with. And on many occasions, (many due to this and the anti-selection factor) they find that providing their employees with annuity packages rather than life insurance or the other benefit package varieties. Due to this, many employers find it far more affordable to offer their employees with group annuity purchasing instead. But, unfortunately, this is something that poorly affects the long-term finances of the said employees since they are the ones stuck paying the marketing and administrative fees.
At Rising Capital Associates, you can sell your annuity for cash that you can use immediately. Contact us today for more informati0n on how we can help you.