Truly. What I have been calling here as
the SNAP principle. It is the opposite of
outright concerns on rate of return and
all the emotional turmoil that comes
with that choice.
Rather, it is about being convicted emotionally
that you want your money to be there for you,
guaranteed, to the best of our country's financial
system's ability, when future times arise in life
Safety, Income Needs and Asset Preservation
An Uninformed Annuity Buyer can chase rates of return, if he is under the false (uninformed) impression he can have his cake and eat it too.
Some equity indexed annuities definitely have returned incredible yields over the past few years (2012 to 2014) because the insurers have been savvy and fortunate to capitalize lucratively on the indexing strategies that the contracts provide for. (actual statements available on request).
The reality is, however, an annuity was essentially designed to exist, indefinitely (or at least until the maturity date in the policy, usually age 100). As such, an insurance company is obligated (by State law as well) to invest your monies prudently, in a manner that the insurer can be satisfied will fulfill all of the legal obligations inherent within the terms of your written contract.
Do stock portfolios have similar contractual obligations?
Is there a contractual guarantee somewhere in the prospectus of
your mutual fund?
It is fair to say that your stock and mutual funds have a "more
liberated" opportunity to return greater yields, with
that element of risk that you must be comfortable with.
Obviously, the Informed Annuity Buyer has a slightly different prerogative. This person is aware that their contract cannot return spectacular year to year yields without that same element of risk. It is that specific element of risk that an informed annuity buyer prefers not to associate with!
The informed annuity buyer prefers the comfort of a sure thing; The return of their money perhaps more than a return on their money.
Not to say this will happen only. (In 2014 Insurers are currently scrambling to outdo each other with superior crediting strategies).
But the fact remains that the first choice of the informed annuity buyer is to not have to worry about loss. The annuity is one of the best financial instruments to solve that concern for this type of individual.
Annuity buyers, by and large, are a content lot, despite some of the negative press surrounding annuities, that can often originate from:
1) Brokers of other financial products like stocks, mutual funds etc.
2) Self appointed consumer financial advocates who dwell on fees and commissions as if other financial instruments can offer the same level of safety for free. (Of course, this is a circular argument and a matter of opinion).
3) And incorrectly "sold" annuity buyers who thought they were going to get rich in an annuity.
But, if expectations are set properly when purchasing an annuity, expectations are always met, based on the claims paying ability of the insurer.