Equity Indexed Annuities
The last type of annuity is the equity indexed annuity, which is the type that the salesman I met a few weeks ago was selling at a steak dinner he held for people contemplating retirement strategies.
With an equity index annuity, you still receive a guarantee that you’ll get your money back. And if the equity index — say, the SP 500 — goes up, the annuity company will credit a portion of that to your account. Not only is your gain usually just a percentage of the actual gain, the overall amount you get in any year might be subject to a cap and additional costs.
Light Reading on Annuities
Any decision you make about an annuity is bound to be important, given how much money the person selling it will most likely ask you for. But much of the background reading on the topic is dull and confusing.
So here are three things that I actually enjoyed reading and made me think harder. One of them, “Annuity Insights,” comes from Fisher Investments. They don’t like annuities very much over there, and make money managing other kinds of investments.
The other two come from academics I’ve spoken to who do think certain annuities are worth considering, and both have other jobs that could earn them more money if more people buy annuities.
The first, “Fixed Index Annuities: Consider the Alternative,” by a Yale professor, Roger G. Ibbotson, explains how some index annuities could help people in a rising interest rate environment. He is chairman of an investment firm that could receive compensation for licensing rights to indexes that annuity firms might use.
The second, “Annuity Fables: Some Observations From an Ivory Tower,” appeared in the Journal of Financial Planning and was written by Moshe A. Milevsky of York University in Toronto. It is more of an omnibus piece about the mean things people often say about annuities and whether they are true. Professor Milevsky has a variety of consulting engagements related to the products.
Article source: https://www.nytimes.com/2018/12/14/your-money/annuity-explainer.html?partner=rss&emc=rss
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