There are times when I read Investment News and it reads more like a Dave Berry humor column than serious news to me. A September 14th column entitled “Index-annuity crusader” is an example of this. It began with the statement, “Sheryl J. Moore is mad as hell at the media, and she’s not going to take it anymore.” Apparently, Ms. Moore is tired of the constant barrage of bad press and ‘inaccuracies’ about Index Annuities. What struck me as humorous was the statistics she used to back her praise of these products (italics mine):
“The average surrender period is only 10 years”
“The average first year penalty is only 10%”
“The average broker’s or agent’s commission on indexed annuities was (only) 6.46%, though a few pay as high as 10%”
So if you put $100,000 in these vehicles, above the free withdrawal amount you couldn’t pull your own money out for 10 years. 10 years ago Bill Clinton was president and the internet was just emerging. If you did need to pull your money out after year one, it would only cost you an average of $10,000. And either way, the average broker receives $6,460 (could be as much as $10,000) on the sale based on their ability to fill out paperwork. The indexed-annuity industry may want to find another spokesperson to defend their product. They should consider hiring the same people who write the impossible-to-read prospectuses, as confusion and fear seems to be the best driver of these products.